Take-It-or-Leave-It Offers

What would happen in our example if the seller could make a take-it-or-leave-it offer to the buyer? If a take-it-or-leave-it offer is rejected, the game ends and the good isn’t traded. If the seller could make such an offer, he should offer to sell the product for just under $1300. Since the buyer values the good at $1300, he would be better off accepting any offer less than $1300. As this example shows, a party who can make a take-it-or-leave-it offer gets all the benefits of the trade.

To make an effective take-it-or-leave-it offer, you must make credible your threat to walk away from negotiations if your initial offer is rejected. The threat to walk away, however, often lacks credibility because both parties will still benefit from further negotiations if the first offer is rejected. The best way to make credible take-it-or-leave-it offers is to establish a record of having walked away from past negotiations.

“Boulwarism”is making a reasonable offer and then refusing to negotiate further.^[3] The term refers to Lemuel R. Boulware, a vice president at General Electric who developed a strategy of never negotiating with unions. Boulware would make a single take-it-or-leave-it offer to workers. By developing a pattern of making such offers, Boulware’s stance gained credibility.

Imagine you’re negotiating a business deal that must be concluded within the next 24 hours, and you would like to propose a take-it-or-leave-it offer. You are certain that if your prospective partner was forced to either (1) accept the offer or (2) walk away from the deal, then she would accept. Unfortunately, you suspect that your prospective partner will respond to your offer with a somewhat less favorable counteroffer. You can make a take-it-or-leave-it offer only if you can credibly threaten never to consider any other offers if yours is rejected. If your prospective partner believes that you really want the deal to succeed, then she will also know that you would be unwilling to walk away from her counteroffer. You could greatly improve your negotiating position by eliminating the possibility of your ever hearing her counterproposal. You could, for example, mail her an offer and then leave town for a vacation. By reducing your options. you would be reducing hers. If you could not respond to a counteroffer, then your potential partner would either have to either accept your offer or walk away.

^[3]Ibid., 56.