Zone of Possible Agreement (ZOPA)

What is a ZOPA and Why does it Matter?

A "Zone of Possible Agreement" (ZOPA) exists if there is a potential agreement that

would benefit both sides more than their alternative options do. For example, if Fred
wants to buy a used car for $5,000 or less, and Mary wants to sell one for $4,500, those
two have a ZOPA. But if Mary will not go below $7,000 and Fred will not go above
$5,000, they do not have a zone of possible agreement.

ZOPA might almost sound like a foreign word for a cheer of joy, or maybe even a new
and exciting soft drink about to splash the marketplace. It's neither but it's nearly just as
sweet.

ZOPA stands for Zone of Possible Agreement. It's the blue sky range where deals are
made, that both parties to a negotiation find acceptable. Whether we're buying
something at a bustling yard sale, a country home, or entering into a complex business
venture, the Zone Of Possible Agreement is where an agreement is most likely to occur.

The process in finding this zone requires a little bit of detective work in order to make it
work. It begins with a proposal by a person, commercial entity or organization known as
a 'Proponent'. Essentially, this is the person who puts an offer on the table. The
receiving end of a proposal is known as a 'Prospect'. This is the person or entity who
considers the merits of the offer or proposal. The prospect will accept the proposal,
make a counter proposal/offer, or outright reject it. This is where the game begins to get
seriously fun.

The proponent is trying to sell us something. This can be a product, a business idea,
services, an organizational concept or a combination of these things. The proponent is
more commonly called the 'seller'. The prospect, on the other hand, is more commonly
called the 'buyer'.

The seller wants to get the maximum amount possible for their proposal, but generally
may also set a limit for the least amount they will accept. The least amount they are
willing to accept, is known as the seller's 'Reservation Price'. This is the amount where
they draw the line, also know as the 'walk away' from the deal point.

The buyer, on the other hand, wants to pay the least amount possible, but may
consider a higher amount that they might be prepared to pay as well. The maximum
amount they are prepared to pay is also known as the buyer's 'Reservation Price' or
'walk away' from the deal point.

The differences between these respective lows and highs of both the seller and buyer,
are their range of expectations. When you have a common ground or overlap between
these two different ranges, this is known as ZOPA or the Zone of Possible Agreement.

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The ZOPA is critical to the successful outcome of negotiation, but it may take some time
to determine whether a ZOPA exists. It may only become known once the parties
explore their various interests and options. If the disputants can identify the ZOPA, there
is a good chance that they will come to an agreement.

Foundations of ZOPA: BATNAs

In order for disputing parties to identify the ZOPA, they must first know their alternatives,
and thus their "bottom line" or "walk away position."

← Alternatives: Parties must determine what alternatives they have to any

agreement. Roger Fisher and William Ury introduced the concept of "BATNA"
(Best Alternative To a Negotiated Agreement). This is the best course of
action that a party can pursue if no agreement is reached.[1]

For example, Mary might have two potential buyers. Georgio is willing to pay $6,950.
Mary is now negotiating with Fred. If he will pay more than Georgio (Mary's BATNA),
she'll sell to him. If he won't pay that much, she'll sell to Georgio. Likewise, if Fred has
found another car he likes for $5,500, then he won't pay more for Mary's car than
that...maybe even a bit less.  Fred's BATNA is $5,500.

← Bottom Lines or Walk-Away Positions: BATNAs determine each side's bottom

lines. If you have an alternative car available for $5,000, $5,000 is your bottom
line. If you can sell your car for $7,000, that is your bottom line. If you don't do
better than that in the negotiation, you'll walk away.

So, a zone of possible agreement exists if there is an overlap between these walk away
positions. If there is not, negotiation is very unlikely to succeed. In fact, it will only
succeed if one party either realizes that his or her BATNA is not as good as he or she
thought, or she decides for some other reason to accept the agreement, even though an
alternative option might have yielded better results. (This often happens when parties do
not explore or understand their BATNAs well enough.)

Identifying the ZOPA

If both sides know their BATNAs and walk away positions, the parties should be able to
communicate, assess proposed agreements, and eventually identify the ZOPA.
However, parties often do not know their own BATNAs, and are even less likely to know
the other side's BATNA. Often parties may pretend they have a better alternative than
they really do, as good alternatives usually translate into more power in the negotiations.
This is explained more in the essay on BATNAs. The result of such deception, however,
might be the apparent absence of a ZOPA, when one actually did exist. Shared
uncertainties may also affect the parties' abilities to assess potential agreements
because the parties may be unrealistically optimistic or pessimistic about the possibility
of agreement or the value of alternative options.[2]

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ZOPAs in Distributive and Integrative Negotiations

The nature of the ZOPA depends on the type of negotiation.[3]  In a distributive

negotiation, in which the participants are trying to divide a "fixed pie," it is more difficult to
find mutually acceptable solutions as both sides want to claim as much of the pie as
possible. Distributive negotiations over a single issue tend to be zero-sum -- there is a
winner and a loser. There is no overlap of interests between the parties; therefore, no
mutually beneficial agreement is possible.

For example, two people may be competing for one job. In the simplest case, there is no
ZOPA because both people want the full-time job and are not willing to divide the job
responsibilities and salary. One person must "win" and the other must "lose."

On the other hand, integrative negotiations involve creating value or "enlarging the pie."
This is possible when parties have shared interests or are dealing with multiple issues.
In an integrative negotiation, the parties can combine their interests to create joint value.
To achieve integration, negotiators can deal with multiple issues at the same time and
make trades between them. This is so that I might get more of something that I value
while you get more of something that you value. That way both parties can "win," even
though neither gets all that they originally thought they wanted. In the example above, if
rewriting the job description could create an additional job then the distributive
negotiation would change into an integrative negotiation between the employer and the
two potential employees. If both applicants are qualified, now they may both get jobs.
The ZOPA, in this case, exists when two jobs are created and each applicant prefers a
different one of the two.

Best Alternative to a Negotiated Agreement (BATNA)

What BATNAs Are

BATNA is a term coined by Roger Fisher and William Ury in their 1981 bestseller,
Getting to Yes: Negotiating Without Giving In.[1] It stands for "best alternative to a
negotiated agreement." BATNAs are critical to negotiation because you cannot make a
wise decision about whether to accept a negotiated agreement unless you know what
your alternatives are. Your BATNA "is the only standard which can protect you both from
accepting terms that are too unfavorable and from rejecting terms it would be in your
interest to accept."[2] In the simplest terms, if the proposed agreement is better than
your BATNA, then you should accept it. If the agreement is not better than your BATNA,
then you should reopen negotiations. If you cannot improve the agreement, then you
should at least consider withdrawing from the negotiations and pursuing your alternative
(though the costs of doing that must be considered as well).

Having a good BATNA increases your negotiating power. Therefore, it is important to

improve your BATNA whenever possible. Good negotiators know when their opponent is
desperate for an agreement. When that occurs, they will demand much more, knowing
their opponent will have to give in. If the opponent apparently has many options outside
of negotiation, however, they are likely to get many more concessions, in an effort to
keep them at the negotiating table. Thus making your BATNA as strong as possible
before negotiating, and then making that BATNA known to your opponent will strengthen
your negotiating position.

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Guy Burgess and Heidi Burgess have adapted the concept of BATNA slightly to
emphasize what they call "EATNAs" estimated alternatives to a negotiated agreement"
instead of "best alternatives." Even when disputants do not have good options outside of
negotiations, they often think they do. (For example, both sides may think that they can
prevail in a military struggle, even when one side is clearly weaker, or when the relative
strengths are so balanced that the outcome is very uncertain.) Yet, perceptions are all
that matter when it comes to deciding whether or not to accept an agreement. If a
disputant thinks that he or she has a better option, she will, very often, pursue that
option, even if it is not as good as she thinks it is.

BATNA and EATNAs also affect what William Zartman and may others have called
"ripeness," the time at which a dispute is ready or "ripe" for settlement.[3] When parties
have similar ideas or "congruent images" about what BATNAs exist, then the negotiation
is ripe for reaching agreement. Having congruent BATNA images means that both
parties have similar views of how a dispute will turn out if they do not agree, but rather
pursue their other rights-based or power-based options. In this situation, it is often
smarter for them to negotiate an agreement without continuing the disputing process,
thus saving the transaction costs. This is what happens when disputing parties who are
involved in a lawsuit settle out of court, (which happens in the U.S. about 90 percent of
the time). The reason the parties settle is that their lawyers have come to an
understanding of the strength of each sides' case and how likely each is to prevail in
court. They then can "cut to the chase," and get to the same result much more easily
and more quickly through negotiation.

On the other hand, disputants may hold "dissimilar images" about what BATNAs exist,
which can lead to a stalemate or even to intractability. For example, both sides may think
they can win a dispute if they decide to pursue it in court or through force. If both sides'
BATNAs tell them they can pursue the conflict and win, the likely result is a power
contest. If one side's BATNA is indeed much better than the other's, the side with the
better BATNA is likely to prevail. If the BATNAs are about equal, however, the parties
may reach a stalemate. If the conflict is costly enough, eventually the parties may come
to realize that their BATNAs were not as good as they thought they were. Then the
dispute will again be "ripe" for negotiation.

The allure of the EATNA often leads to last-minute breakdowns in negotiations.

Disputants can negotiate for months or even years, finally developing an agreement that
they think is acceptable to all. But then at the end, all the parties must take a hard look at
the final outcome and decide, "is this better than all of my alternatives?" Only if all the
parties say "yes," can the agreement be finalized. If just one party changes his or her
mind, the agreement may well break down. Thus, knowing one's own and one's
opponent's BATNAs and EATNAs is critical to successful negotiation

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Determining Your BATNA

BATNAs are not always readily apparent. Fisher and Ury outline a simple process for
determining your BATNA:

1. develop a list of actions you might conceivably take if no agreement is reached;

2. improve some of the more promising ideas and convert them into practical
options; and
3. select, tentatively, the one option that seems best.[4]

BATNAs may be determined for any negotiation situation, whether it be a relatively

simple task such as finding a job or a complex problem such as a heated environmental
conflict or a protracted ethnic conflict.

Fisher and Ury offer a job search as a basic example of how to determine a BATNA. If
you do not receive an attractive job offer by the end of the month from Company X, what
will you do? Inventing options is the first step to determining your BATNA. Should you
take a different job? Look in another city? Go back to school? If the offer you are waiting
for is in New York, but you had also considered Denver, then try to turn that other
interest into a job offer there, too. With a job offer on the table in Denver, you will be
better equipped to assess the New York offer when it is made. Lastly, you must choose
your best alternative option in case you do not reach an agreement with the New York
company. Which of your realistic options would you really want to pursue if you do not
get the job offer in New York?

More complex situations require the consideration of a broader range of factors and
possibilities. For example, a community discovers that its water is being polluted by the
discharges of a nearby factory. Community leaders first attempt to negotiate a cleanup
plan with the company, but the business refuses to voluntarily agree on a plan of action
that the community is satisfied with. In such a case, what are the community's options for
trying to resolve this situation?

← They could possibly sue the business based on stipulations of the Clean Water
Act.
← They could contact the Environmental Protection Agency and see what sort of
authority that agency has over such a situation.
← They could lobby the state legislature to develop and implement more stringent
regulations on polluting factories.
← The community could wage a public education campaign and inform citizens of
the problem. Such education could lead voters to support more environmentally
minded candidates in the future who would support new laws to correct problems
like this one.

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In weighing these various alternatives to see which is "best," the community members
must consider a variety of factors.

← Which is most affordable and feasible?

← Which will have the most impact in the shortest amount of time?
← If they succeed in closing down the plant, how many people will lose their jobs?

These types of questions must be answered for each alternative before a BATNA can be
determined in a complex environmental dispute such as this one.

BATNAs and the Other Side

At the same time you are determining your BATNA, you should also consider the
alternatives available to the other side. Sometimes they may be overly optimistic about
what their options are. The more you can learn about their options, the better prepared
you will be for negotiation. You will be able to develop a more realistic view of what the
outcomes may be and what offers are reasonable.

There are also a few things to keep in mind about revealing your BATNA to your
adversary. Although Fisher and Ury do not advise secrecy in their discussions of
BATNAs, according to McCarthy, "one should not reveal one's BATNA unless it is better
than the other side thinks it is."[5] But since you may not know what the other side
thinks, you could reveal more than you should. If your BATNA turns out to be worse than
the opponent thinks it is, then revealing it will weaken your stance.

BATNAs and the Role of Third Parties

Third parties can help disputants accurately assess their BATNAs through reality testing
and costing. In reality testing, the third party helps clarify and ground each disputing
party's alternatives to agreement. S/he may do this by asking hard questions about the
asserted BATNA: "How could you do that? What would the outcome be? What would the
other side do? How do you know?" Or the third party may simply insert new information
into the discussion...illustrating that one side's assessment of its BATNA is likely
incorrect. Costing is a more general approach to the same process...it is a systematic
effort to determine the costs and benefits of all options. In so doing, parties will come to
understand all their alternatives. If this is done together and the parties agree on the
assessment, this provides a strong basis upon which to come up with a negotiated
solution that is better than both sides' alternatives. But if the sides cannot come to such
an agreement, then negotiations will break down, and both parties will pursue their
BATNA instead of negotiation.