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Too precise to pursue: How precise first offers create barriers-to-entry in negotiations and markets

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  • Lee, Alice J.
  • Loschelder, David D.
  • Schweinsberg, Martin
  • Mason, Malia F.
  • Galinsky, Adam D.

Abstract

Prior research shows that precise first offers strongly anchor negotiation outcomes. This precision advantage, however, has been documented only when the parties were already in a negotiation. We introduce the concept of negotiation entry, i.e., the decision to enter a negotiation with a particular party. We predict that precise prices create barriers-to-entry, reducing a counterpart’s likelihood of entering a negotiation. Six studies (N = 1580) and one archival analysis of real estate data (N = 11,203) support our barrier-to-entry prediction: Potential negotiators were less likely to enter a negotiation with precise- versus round-offer makers. Using both statistical mediation and experimental-causal-chain analyses, we establish that perceptions of offer-maker inflexibility underlie the precision barrier. Furthermore, we demonstrate that the precision mechanism (inflexibility) is distinct from the extremity mechanism (being offended) that produces barriers-to-entry from extreme first offers. The discussion theoretically integrates research on first-offer precision and extremity by offering the Precision-Extremity Model of First Offers.

Suggested Citation

  • Lee, Alice J. & Loschelder, David D. & Schweinsberg, Martin & Mason, Malia F. & Galinsky, Adam D., 2018. "Too precise to pursue: How precise first offers create barriers-to-entry in negotiations and markets," Organizational Behavior and Human Decision Processes, Elsevier, vol. 148(C), pages 87-100.
    • Handle: RePEc:eee:jobhdp:v:148:y:2018:i:c:p:87-100
    DOI: 10.1016/j.obhdp.2018.03.001
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    References listed on IDEAS

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    1. Margarita Leib & Nils C. Köbis & Marc Francke & Shaul Shalvi & Marieke Roskes, 2021. "Precision in a Seller’s Market: Round Asking Prices Lead to Higher Counteroffers and Selling Prices," Management Science, INFORMS, vol. 67(2), pages 1048-1055, February.
    2. Leonardelli, Geoffrey J. & Gu, Jun & McRuer, Geordie & Medvec, Victoria Husted & Galinsky, Adam D., 2019. "Multiple equivalent simultaneous offers (MESOs) reduce the negotiator dilemma: How a choice of first offers increases economic and relational outcomes," Organizational Behavior and Human Decision Processes, Elsevier, vol. 152(C), pages 64-83.
    3. Kimbrough, Erik O. & Porter, David & Schneider, Mark, 2021. "Reference dependent prices in bargaining: An experimental examination of precise first offers," Journal of Economic Psychology, Elsevier, vol. 86(C).
    4. Tey, Kian Siong & Schaerer, Michael & Madan, Nikhil & Swaab, Roderick I., 2021. "The Impact of Concession Patterns on Negotiations: When and Why Decreasing Concessions Lead to a Distributive Disadvantage," Organizational Behavior and Human Decision Processes, Elsevier, vol. 165(C), pages 153-166.
    5. Brady, Garrett L. & Inesi, M. Ena & Mussweiler, Thomas, 2021. "The power of lost alternatives in negotiations," Organizational Behavior and Human Decision Processes, Elsevier, vol. 162(C), pages 59-80.
    6. Petrowsky, Hannes M. & Schweinsberg, Martin & Seitz, Lennart & Funk, Burkhardt & Loschelder, David D., 2023. "Deal or no deal? How round vs precise percentage offers and price-ending mimicry affect impasse risk in over 25 million eBay negotiations," Journal of Economic Psychology, Elsevier, vol. 94(C).
    7. Zhou, Li & Zhu, Guowei, 2022. "Mind the gap: How the numerical precision of exercise-data-based food labels can nudge healthier food choices," Journal of Business Research, Elsevier, vol. 139(C), pages 354-367.

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