What is a 'Zone Of Possible Agreement'

Not a physical place, the zone of possible agreement (ZOPA) or bargaining range is considered an area where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal. In order for negotiating parties to find a settlement or reach an agreement, they must work towards a common goal and seek an area that incorporates at least some of each party's ideas.

BREAKING DOWN 'Zone Of Possible Agreement'

No matter how much negotiation occurs, an agreement can never be reached outside of the zone of possible agreement. In order to reach an agreement successfully, negotiating parties must understand one another’s needs, values and interests. For example, a lender wants to loan money at a specific interest rate for a specific period of time. A borrower who is willing to pay that rate and agree to the repayment period shares a ZOPA with the lender, and the two may be able to reach an agreement.

A ZOPA can only exist if there is some overlap between what all parties are willing to accept from a deal. For example, in order for Tom to sell his car to John for a minimum $5,000, John must be willing to pay at least $5,000. If John is willing to offer $5,500 for the car, then there is an overlap between his and Tom’s bottom lines. If John can only offer $4,750 for the car, then there is no overlap, and there cannot be a ZOPA.

Negative Bargaining Zones

When negotiating parties cannot reach a ZOPA, they are in a negative bargaining zone. A deal cannot be reached in a negative bargaining zone, as the needs and desires of all parties cannot be met by a deal made under such circumstances. For example, let’s say that Dave wants to sell his mountain bike and gear for $700 in order to buy new skis and ski gear. Suzy wants to buy the bike and gear for $400, and can’t go any higher. Dave and Suzy have not reached a ZOPA; they are in a negative bargaining zone.

However, negative bargaining zones can be overcome if negotiating parties are willing to learn about one another’s desires and needs. For example, let’s say Dave explains to Suzy that he wants to use the proceeds from the sale of the bike to buy new skis and ski gear. Suzy has a pair of gently-used, high-quality skis that she is willing to part with. Dave is willing to take less cash for the mountain bike if Suzy throws the used skis in. The two parties have reached a ZOPA and can, therefore, make a successful deal.

  1. Negotiation

    A negotiation is a discussion meant to resolve issues by forming ...
  2. Normal Profit

    Normal profit is an economic condition occurring when the difference ...
  3. Shared Equity Finance Agreements

    Shared equity finance agreements occur when two parties purchase ...
  4. Negotiated Sale

    A negotiated sale is when the issuer and an underwriter negotiate ...
  5. Demand Guarantee

    A demand guarantee is a form of protection for a contract that ...
  6. Option Agreement

    An option agreement is a legal contract between two parties outlining ...
Related Articles
  1. Small Business

    How to Master the Art of Negotiation

    Negotiation is all about coming to an agreement, learn the tactics that good negotiators use to help you get what you want in any negotiation.
  2. Investing

    Harley-Davidson Is Doubling Down on Street Bikes (HOG, PII)

    Harley-Davidson's (NYSE: HOG) stock has tumbled more than 14% in the days since it reported third quarter earnings, which not only showed lower sales and shipments but also forced the bike maker ...
  3. Investing

    Heli-Skiing in Canada's Rockies: What Will It Cost?

    Ready for a heli-skiing adventure? Here's how to choose the right all-inclusive package for you.
  4. Investing

    6 Great Places to Buy a Winter Home Overseas

    Looking for a winter home abroad? Here are a few destinations for people who love snow, and a few for those trying to escape it.
  5. Personal Finance

    Negotiate Your Salary Now for Greater Income in the Future

    Here's why it's so important to negotiate your salary and some tips on how to effectively do it.
  6. Investing

    Why Traditional Investment Strategies Don't Work

    Why traditional investment strategies come up short in today's new market reality.
  7. Personal Finance

    Tips for Negotiating the Purchase of a New Car

    There are a number of ways to make sure you get the best price on the purchase of a new car.
  8. Insights

    7 Affordable Summer Adventure Sports

    These affordable sports are self-powered, providing participants a valuable workout, usually in a beautiful setting.
  1. How do you make working capital adjustments in transfer pricing?

    Understand how working capital adjustments are applicable to transfer pricing. Learn about the arm's length standard and ... Read Answer >>
  2. How do currency swaps work?

    Learn how a currency swap works, including who uses these transactions, and the mechanics and purpose of the different cash ... Read Answer >>
  3. How do bills of exchange and promissory notes differ?

    A bill of exchange is a written agreement between two parties – the buyer and the seller – used primarily in international ... Read Answer >>
  4. What is the difference between the gearing ratio and the debt-to-equity ratio?

    Dive deeper into gearing ratios: what are they, how are they used and why the debt to equity ratio is one of the most popular ... Read Answer >>
Trading Center