Advanced negotiation: does rivalry make us pay too much?
When a competitor enters the discussion, securing the deal can become an end in itself. The managerial question is specific: how can we prevent rivalry from making us accept terms we would otherwise reject?
What the literature establishes
Richard H. Thaler (1988, Journal of Economic Perspectives) reviews research on the “winner's curse”: when buyers estimate an uncertain common value, the highest bidder risks being the person who has overestimated it most. Winning then provides information about one's own estimate, rather than merely signalling commercial success. This mechanism requires neither personal hostility nor an excessive appetite for competition.
When beating the other side becomes a goal
Gillian Ku, Deepak Malhotra and J. Keith Murnighan (2005, Organizational Behavior and Human Decision Processes) examine competitive escalation in live and Internet auctions, as well as experimentally. Their findings support a mechanism through which rivalry and time pressure can fuel competitive arousal and overbidding. The problem is therefore not simply misjudging the asset, but allowing the desire to win to change what one is willing to pay.
The hasty conclusion
One might conclude that competitive situations should be avoided or that a spending limit should never be raised. That would confuse a revision justified by new information with one motivated by the presence of a rival. A buyer may legitimately value particular synergies; what needs checking is the basis for changing the limit. (our executive and employee training programmes)
What the evidence does not allow us to generalise
An auction does not fully reproduce a negotiation involving warranties, deadlines and an ongoing business relationship. The cited research does not directly measure practices in Lugano's banks, fashion businesses, trading firms or Italian-speaking family SMEs. It warrants targeted vigilance, not a diagnosis of local culture or a claim that all competition destroys value.
A practical check in Lugano
Within SHR's “Advanced Negotiation” programme, an exercise applicable in Lugano is to record a spending limit and the information that would justify revising it before a purchasing negotiation, using an Italian-language form if that is the working language. A bank selecting a provider, a fashion company purchasing logistics services, a trader buying a consignment or a family SME acquiring equipment can use the same protocol. After each case, record every increase in the limit and check whether it was preceded by new, documented information related to the expected value. The measure is the proportion of increases without such justification: it makes decision discipline verifiable without claiming to measure the deal's profitability on its own. To go further: explore the Advanced Negotiation training in Lugano in the canton of Ticino, or browse our executive and employee training programmes in Switzerland.
In pictures: Advanced Negotiation in Lugano
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