The Tapering Concessions Approach To Negotiating (A Study)

By: Donald L Swanson

“What’s the Best Way to Give Ground in Negotiations?” is the report of a study on negotiating strategies. [Fn.1]

What follows is a summary of that report.

Overview

In negotiating, a key challenge is to decide how much to change your offer at each round of the negotiation:

• giving away too much devalues your offer; but
• giving away too little risks getting stuck in an impasse.

An unknown complication is what the amounts of any concession might signal about the negotiator’s intentions:

• wanting to settle quickly?
• lacking ambition?
• encouraging reciprocity?

The study conducts several experiments to, (i) understand how negotiators respond to concession signals, and (ii) identify the best way to offer concessions.

Typically, negotiators make concessions by reducing their price the exact same amount across rounds — e.g., $50 each time.

An alternative approach is to taper the concessions — make concessions smaller each round: e.g., $100 the first round, then $60, then $30, and so on.

The study shows that the tapering approach will achieve better negotiation results than other approaches.

First Experiment—Tapering v. Consistent Concessions

In the first experiment, participants are told to pretend:

• they are negotiating to rent a one-bedroom apartment;
• the landlord advertises the rent at $1,500 per month; and 
• monthly rent for similar apartments in the area is between $700-$1,000.

The study’s landlord takes two different approaches with the various participant over three rounds of negotiations:

• half of the participants receive counteroffers that are $100 cheaper every time ($1,400, $1,300, $1,200); and
• the other half receive counteroffers in a tapering pattern ($1,300, $1,225 and $1,200).

Here are the results:

• in each case the landlord’s last offer is $1,200; but
• the average last offer of participants who receive constant concessions is lower than that of the participants who receive tapered concessions — $811 versus $879.

The implication is this: by tapering the size of concessions, negotiators can obtain better deals.

Second Experiment—Tapering v. Large Concession

The second experiment asks participants to negotiate the signing bonus of a job offer:

• recruiters make the same first offer of $20,000;
• half of the recruiters increase their offers by $2,000, then $750, and then $250, resulting in a final offer of $23,000; but
• the other half of recruiters make only-one concession, immediately increasing the offer to $23,000.

Here are the results:

• candidates who receive tapering concessions propose to settle at $23,650 on average; but
• candidates who receive no such cues are a lot more ambitious—with a final counteroffer of $28,161.

The implication is this: recruiters who taper their concessions spend about $4,500 less, on average, than recruiters who make a single concession.

Third Experiment–Size of Tapering Amounts

The third experiment focuses on whether the tapering amounts should be large or small.  And the experiment shows this: the tapering effect works best when applied at a moderate pace.

The third experiment asks participants to negotiate the purchase of a $1,500 second-hand laptop:

• some participants receive three concessions of the same amount from seller; and
• the others receive three decreasing concessions—but at varying paces.

Here are the results:

• participants make the highest average offer ($975) when the seller offers decreasing concessions at a moderate pace; and
• participants make lesser average offers when the seller, (i) makes offers that taper slowly ($957), (ii) makes a very large first concession followed by small ones ($937), and (iii) makes constant-size concessions—this is the worst approach ($909).

The implication is that negotiators should decrease their concession amounts substantially enough each round for the counterparty to take notice.  That’s because the other party:

• “needs to realize that your concessions are getting smaller from round to round”;
• “but not so much as to make your original price seem like a fluke followed by tiny manipulative concessions.”

So, negotiators who intend to taper their concessions need to research their market to understand what “large” or “small” concessions might be.

Why Tapering Works

The tapering concession approach works.  The study shows why:

• by shrinking the size of each concession, negotiators signal that the bottom line is approaching (whether that line is real or not); and
• opposing negotiators are watching for such cues and lower their ambitions to prevent an impasse.

Fourth Experiment—Tapering with a Signal

Tapered concessions work even better when a negotiator explicitly tells the other side that the bottom line is approaching.

A fourth experiment involves rent negotiations with the landlord tapering concessions and then declaring that the bottom line is approaching.

Here are the results: participants make even higher average offers.

This implies that negotiators can improve outcomes by tapering their concessions and then saying, “I’m reaching my limit.”

Cautions

The study’s authors issue these cautions about using the tapering concessions approach:

• Win-win solutions often arise when multiple issues are involved, additional issues can be added, or an ongoing relationship is involved—signaling the approach of a bottom line might turn the focus of negotiations away from win-win possibilities; and
• When the market is relatively transparent, a party’s actual bottom line might be easier to estimate (and a bluff called).

Conclusion

The study’s authors reach this conclusion:

• many negotiators go into a mediation or negotiating session without a plan for making concessions; but
• effectiveness of the tapering concession approach shows why a negotiator should “always plan your concessions prior to negotiating.”

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Footnote 1.  This linked article is a report of a study, published in the Harvard Business Review on October 20, 2021.  The authors of the study and the report are Kian Siong Tey, Michael Schaerer, Nikhil Madan and Roderick Swaab.

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