Question

Explain how the Best Alternative to a Negotiated Agreement is derived.

Answer 1

BATNA is the short form which stands for Best Alternative to a Negotiated Agreement. BATNA was originally coined by the Roger Fisher and William Ury in 1981 book entitled "Getting to Yes: Negotiating without Giving In. It defined as the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made.

Now we understand BATNA through example.

Let X needs to buy a washing machine and is negotiating with Y to purchase washing machine. Y offers to sell his washing machine for Rs. 10000. Y went to another dealer name Z which offer him Rs. 7500 for similar washing machine, Hence X BATNA is Rs. 7500 if Y does not offer a price lower than 7500. X is willing to pay up to Rs. 7500 for the washing machine but he would ideally prefer to pay less than Rs.7500 for example Rs 5000.

Now if Y offer a price higher than 7500, X can buy a washing machine elsewhere. Hence we can not provide Y BATNA if he sells his washing machine to someone else for Rs. 8000, so Rs. 8000 is Y BATNA. In such case the the agreement will not take place as Y willing to sell for a minimum of Rs. 8000 while X will purchasing a maximum of Rs. 7500.

If Y's best alternative to the deal is selling the washing machine to a dealership, which would offer him Rs. 6500, both parties can come to an agreement. In such case there is Zone of potential agreement Rs. 6500 to Rs. 7500. In this range both parties com to an agreement.

In the above case Y has more bargaining power, knowing X's BATNA is at Rs. 7500, the highest price that Y would be able to sell his car to X is Rs, 7500.