Conceptualizing and Measuring the Efficiency of Negotiated Exchanges between Buyers and Sellers: A Data Envelopment Analysis Approach

Buyer–seller negotiations (BSN) are the fundamental mechanism of deal-making in business markets. However, it is well-known that many such negotiations fail to exploit their integrative potential and remain inefficient. Therefore, defining, measuring, and understanding the causes of BSN efficiency are of great consequence to researchers, managers, and policy makers. Based on an assessment of the shortcomings in extant measures, we posit the conceptual and analytical desiderata for any measure of negotiation efficiency. Specifically, we refine the conceptual understanding of BSN efficiency beyond the standard economic viewpoint and extend it to encompass a) affective responses to complement economic outcome measures, b) resources expended to reach these outcomes, and c) the multi-dimensional nature of both the outcome and input (resource) aspects. We propose Data Envelopment Analysis (DEA) as a means to measure our conceptualization of BSN efficiency to alleviate the shortcomings identified. We use two studies to illustrate the face validity and additional insights that employing DEA provides compared to traditional outcome measures. We conclude by discussing the directions for future research.