Good negotiation, says conventional wisdom, involves holding out for the best deal, counteroffering, or driving a hard bargain.
But research by Stanford’s Bradley Larsen, Stanford PhD student Carol Hengheng Lu, and Chicago Booth’s Anthony Lee Zhang suggests otherwise, at least if the primary objective is to make a deal. They find that when negotiations are mediated by third-party brokers, success is actually tied to getting the deal done as quickly as possible.
The researchers studied the issue through the used-car market in the United States, which was big business even before the global semiconductor shortage sent prices through the roof. Auto dealers, fleet operators, and leasing companies trade more than $80 billion worth of vehicles in wholesale auctions every year, with thousands of autos changing hands on any given day.
The stakes can run high, particularly for smaller used-car dealers trying to optimize inventories and profit margins. But it’s an imperfect system. All cars are subject to rapid-fire, 90-second auctions that often fail to result in a sale. When that happens, auction houses name an intermediary to help broker a deal between the seller and the highest bidder.
The researchers analyzed more than 80,000 mediated bargaining sequences with locked-in buyers and sellers from six major US used-car auction houses. The data, from 2006 to 2010, contained comprehensive information, including the identities of all parties and all actions—offers, counteroffers, deals, and no-deals—related to each negotiation.