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.