Question

Suppose a beer company wants to advertise their new product during the commercial break for a popular tv show. The beer company and the broadcast Network need to negotiate on a price that the beer company will pay for the commercial. The beer company wants to air the commercial on this network during the popular tv show but they prefer to pay the least amount possible. The company cannot pay more than $1,000,000 to air the commercial. The beer company estimates they will make $2,000,000 if the commercial airs. If they do not agree with this network, then they can go with another network which will cost them $500,000 to air and they estimate they will earn $800,000. The network wants to air a commercial that will pay them the most money possible. If they cannot agree with the beer company, then they can go with another company that will pay them $700,000 to air their commercial.

(a) What is the Best Alternative to a Negotiated Agreement (BATNA) for the beer company?
(b) What is the BATNA for the network?
(c) What is the reservation point for the beer company?
(d) What is the reservation point for the network?
(e) What is the bargaining zone for the beer company and the network? Is it positive or negative?
(f) Is it possible for both parties to reach an agreement that they would both prefer over their BATNA?

Answer 1

The BATNA for the beer company is to go with another network that will cost them $500,000 to air the commercial. The BATNA for the network is to go with another company that will pay them $700,000 to air their commercial. The reservation point for the beer company is $1,000,000 and for the network is $2,000,000. The bargaining zone is positive and it is possible for both parties to reach an agreement that they would both prefer over their BATNA.

Step-by-step explanation:

The Best Alternative to a Negotiated Agreement (BATNA) for the beer company is to go with another network that will cost them $500,000 to air the commercial and they estimate they will earn $800,000.

The BATNA for the network is to go with another company that will pay them $700,000 to air their commercial.

The reservation point for the beer company is $1,000,000, which is the maximum amount they are willing to pay to air the commercial.

The reservation point for the network is $2,000,000, which is the minimum amount they want to be paid to air the commercial.

The bargaining zone for the beer company and the network is -$1,000,000 to $2,000,000. It is positive because there is overlap between the reservation points of both parties.

It is possible for both parties to reach an agreement that they would both prefer over their BATNA if they can negotiate a price within the bargaining zone that satisfies both parties.