The Tactics of Trade. A Handful of Cents in The Pocket…

Thesis and ideas about the games theory, strategic games and conflicts of interests ( look for part 3). By Thomas Shelling’s “The Strategy of Conflict” book.

Any game is uncertainty. We don’t know how our opponent will act. We don’t know how he will react to our action. We don’t know what his action are directed towards. We don’t know what he really does want. We want him to make a decision, which would be profitable for us, but we don’t know how to do this.  Any of our action may lead us to our opponent’s victory. We play with this uncertainty. We bargain under conditions of uncertainty. We are eager to win.

How to do this? By knowing the tactics, which will help to win in such situations of uncertainty.

Well, about the game tactics. The tactics of bargaining. What is it?

The tactics of bargaining (game) means using the whole set of conditions, actions needed for reaching settled goal and winning in the game. Told by military terms, it is about the choice and usage of positions, ways of attack, defense, encounter battle and tactical regrouping, etc. 

What tactics is the most winning? What tactics should we hold in order to be found in the winning situation, even if we don’t know about possible actions of our opponent? Or to what position should we move during the haggle to win quicker?

Let’s give an example – negotiations between two companies about equipment’s production and delivery. We have 2 parties – a seller and a customer, when the matter is the open haggle.

On the initial stage the parties don’t know the true starting conditions of each other. Namely, they don’t know under what conditions the opposite party is ready to sign a contract. Here the haggle’s initial stage is to find out the opponent side’s starting conditions and conceal your own ones. That is why each side tries to offer such set of conditions which will move the opposition as far as possible from its true conditions or proposition, which would suit both sides.  The other side acts in the same manner.

Both this and that offers are the points on the winning field, which represents, as it  is, the result, situation and decision with individual set of characteristics. All results on the B-field more or less but satisfy the seller’s expectations. And all results on the C-field more or less, but satisfy the Customer’s ones, respectively. D-field represents a diapason of intersecting results suitable for both sides.

In our case, each point is a set of contract’s conditions describing price, terms, basic deliveries and other important conditions. In each point this set is individual and owes its own asymmetrical combinations of gains and risks.

The next stage lets defining the acceptable diapason for each characteristic to clear out the field of decisions suitable for one, at least, or for both sides – what’s much better. It happens in the way like the following – each side proposes its own solution. For example, the customer has named the price he is ready to make a contract upon and waits that the seller will accept his price offer or, at the very last, will make concessions to price offered earlier by the Seller. In case there is no concession, it's to clear up what doesn’t suit both parties and why, under what condition the concession can be made, what counter concession should be done here to get the other one. During the whole haggle each party will make offers being guided by expectations of the other party’s concessions. And everyone understands that others wait the same from ones. This process will last till the parties move to D-zone – the field of solutions more or less suitable for both parties.

On the final stage the parties will make offers on the D-field and will sign the contract after one of the parties makes ultimate and sufficient concession. But, what the ultimate and sufficient concession is? It is such concession, which makes one party think (wait) that the opposite party won’t be coming closer in the way to make more concessions. There is one important clause here – if parties know limits (borders) of this diapason (D-field), any result (or point) is suitable for both parties and each party knows about that. It’s not stable situation because every point is suitable for both parties and ultimate and sufficient concession disappears.

How to win? Winning tactics (position) is to be the first to limit the set of situations, solutions, actions, moves, offers and winnings of our opponent. It is the situation when your opponent’s gain or action is going down, or, what is much better is moving to our field of winnings. We can narrow the field of solutions under the conditions of uncertainty. During the process of haggle the same tactics takes place: we doesn’t clarify concessions suitable for the other party, we just create new limits during the haggle,  and what remains for the other party is to offer solutions in the diapason outlined by us ourselves.

How to do it? To create or use internal and external limits. The task is to narrow constantly the freedom of choice of the opposite party. These limits are obligations we create and put over our opponent, or the obligations which limits not only us, but also the other party. Presence of such absolute, irrevocable and special obligation can cut the diapason of uncertainty down to certain points favorable for us. This obligation should represent itself “the true limitation” which is difficult to abandon.

Then the haggle itself won’t be the clarification of true or suitable conditions of the other party, but the process of creation and clarification of obligations. At the beginning of haggle we create obligations immediately, which will narrow opponent’s winning field. And during the haggle we maneuver among others’ obligations or disprove them, and make our personal, which narrow our opponent or reduce the importance and value of his obligations.

What we gain in result by creating these limits is that we always narrow solutions diapason up to the point favorable for us. These obligations permit to change key points of haggle and haggler’s positions.

To be continued…