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Brinkmanship: What It is, Risks

What is Brinkmanship?

Brinkmanship is a negotiating technique in which one party aggressively pursues specific terms, compelling the other party to either agree or withdraw from the negotiation. Brinkmanship, also known as “brinkpersonship” or less commonly “brinksmanship,” gets its name from the idea of pushing the other party to the “brink” or edge of what they are willing to accommodate.

As a negotiation strategy, brinkmanship is often employed by companies and union negotiators during labour negotiations and strikes, by diplomats, and by business people seeking better deals.

Key points:

  • Brinkmanship is a negotiating strategy that involves making a set of demands and adhering to them, even at the risk of losing the deal entirely.
  • The term originated in foreign policy as a form of aggressive diplomacy that could bring parties to the “brink of war.”
  • In business negotiations, brinkmanship has evolved into an artful skill.
  • Brinkmanship can be employed to secure more favourable terms in a business deal, but it carries the risk of alienating the other parties involved.
  • Factors to consider when choosing whether to engage in brinkmanship include market structure, existing economic relationships, available alternatives, and timing.

Understanding Brinkmanship

At its essence, brinkmanship involves aiming for negotiation success through an uncompromising stance. The potential rewards in brinkmanship negotiations can surpass those in more cooperative discussions because the more assertive party stands to secure superior terms if their approach proves successful. Entities, whether companies or individuals, employing brinkmanship in negotiations might use it as a tactic; they might actually be open to fairer terms but choose to test the limits initially.

In the realm of politics and diplomacy, brinkmanship entails two parties allowing a conflict to escalate dangerously before even considering or discussing a negotiated resolution. Essentially, it mirrors a game of “chicken,” testing which side will yield first.

Risks of Brinkmanship

As contentious as it is precarious, brinkmanship carries significant risks. Although it might occasionally result in advantageous terms in certain negotiations, it has the potential to breed enduring animosity among business associates and staff.

This becomes particularly problematic in cases of recurrent dealings between the same entities over multiple agreements or in negotiations involving various parties. Employing a brinkmanship strategy could lead to a party gaining a reputation for this approach, even alienating counterparts and causing negotiation breakdowns that might sever potential business relationships for years to come.

Economics of Brinkmanship

The effectiveness of brinkmanship as a negotiation tactic can be possible given some specific economic circumstances. The structure of the market plays a pivotal role in determining the efficacy or failure of the method. When one party possesses considerable market dominance while the other lacks it, employing brinkmanship becomes more advantageous. In scenarios where either party holds a multitude of alternatives, leveraging brinkmanship becomes beneficial, aligning with Michael Porter’s 5 Forces model, where market concentration contributes to competitive advantage concerning suppliers or customers.

Furthermore, the adoption of a brinkmanship strategy can capitalise on an economic concept referred to as “hold-up.” Designed by economist Oliver Williamson, hold-up situations arise when a party has invested in assets whose value hinges on a specific relationship. A pre-existing relationship involving investments in relationship-specific assets enhances the effectiveness of a brinkmanship strategy as the counterparty risks losing the relationship’s value.

It’s essential to note that these conditions also operate inversely. Parties lacking market influence, facing counterparts with substantial market power, or heavily invested in relationship-specific assets are both less likely to succeed in employing brinkmanship and more susceptible to being subject to brinkmanship tactics themselves.

Brinkmanship Tips

While brinkmanship can be an assertive approach, it might yield favourable outcomes for the party employing it. The crux lies in limiting the potential damage it has brought to a business relationship. When engaging in negotiations with a vendor or supplier using brinkmanship, the initiator must ensure having contingency plans in place in case the vendor or supplier chooses to disengage. Employing brinkmanship should occur at the negotiation’s outset; its use in the final stages may signal a lack of good faith, potentially provoking resentment in the opposing party.

Brinkmanship ought to be deployed only after fostering a relationship; its premature application may prompt potential business partners or vendors to withdraw as they haven’t invested sufficient time or effort. Negotiators must also be pragmatic; demanding an extensive discount from a supplier might prove economically unfeasible for them and could lead to an abrupt end to negotiations.

Responding to Brinkmanship

Brinkmanship has the potential to disrupt and collapse negotiations. Being subjected to such tactics can evoke feelings of being pressured, exposed, or apprehensive.

One approach to circumvent this scenario involves seeking alternative business partners, suppliers, or clients with differing demands. This allows for sidestepping unnecessary or uncomfortable concessions. In cases where no viable alternatives exist, a strategy could entail conceding to an aggressive demand while simultaneously seeking compensatory measures elsewhere.

For example, if a crucial supplier imposes a non-negotiable price on a necessary component, one might negotiate for other valuable benefits such as an extended warranty, complimentary customer support, or future discounts.

Dealing with Brinkmanship?

Specialists suggest that the most effective approach to manage brinkmanship is to minimise vulnerabilities prior to initiating negotiations. Nonetheless, there are instances where this proves unfeasible. In such scenarios, the optimal strategy involves exploring alternative negotiating parties or seeking compensations elsewhere.

Example of Brinkmanship in Business

The complicated nature of business negotiations can lead to some instances of  serious brinkmanship. One prevalent example is to dangle a lucrative take-it-or-leave-it offer with a short time window to goad the other side to cave in.

This “hard sale” approach is frequently encountered in substantial purchases, such as car acquisitions or real estate transactions. In scenarios where there’s high demand for a vehicle or property, these offers can bypass the usual back-and-forth negotiations and bargaining.

For instance, imagine a prospective farm buyer in Queensland interested in a 12,000-hectare tract of land out in Ilfracombe with an asking price of $10m – but the buyer’s best offer is $8.9m. In this situation, the buyer lacks insights into the seller’s circumstances or their eagerness to sell. Consequently, the buyer might resort to brinkmanship by declaring the offered price as their best offer and the seller will “gently” be given 24 hours to decide.

Conclusion

Understanding brinkmanship’s intricacies and its implications on Australian business negotiations empowers negotiators to navigate high-stakes scenarios effectively. Striking the balance between assertiveness and prudence is the key to leveraging brinkmanship without plunging negotiations into irreversible turmoil.

DISCLAIMER: This article is for informational purposes only. BARTERCARD does not encourage or disparage brinkmanship as a negotiation tactic.

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