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ZOPA – “Zone of Potential Agreement” - PowerPoint PPT Presentation


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ZOPA – “Zone of Potential Agreement”. What is a ZOPA? The area where two or more parties to a negotiation have common ground, in which an agreement can be met. In other words, where a deal or settlement is possible. Outside of the zone, no amount of negotiation will yield an agreement.

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ZOPA – “Zone of Potential Agreement”


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Presentation Transcript
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ZOPA –

“Zone of Potential Agreement”

  • What is a ZOPA?
    • The area where two or more parties to a negotiation have common ground, in which an agreement can be met. In other words, where a deal or settlement is possible.
    • Outside of the zone, no amount of negotiation will yield an agreement.
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Example: Buying a car

On one side, you have the seller

On the other, you have the buyer

The seller is looking to sell a car for $4,500 or more

The buyer is looking to buy a car for $5,000 or less

Notice that there is an area of overlap between the buyer and seller's interest. This overlap of $500 represents the "Zone of Potential Agreement."

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Interest Rate

Seller’s Reservation Line

Price

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Interest Rate

Buyer’s Reservation Line

Price

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Interest Rate

ZOPA – “Zone of Potential Agreement”

Price

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Seller’s First Offer

Interest Rate

Buyer’s First Offer

Price

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Seller’s First Offer

Feasible Deal Structures

Interest Rate

Happy Agreement

Face

Buyer’s First Offer

Price

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Identifying the ZOPA is important for effectively reaching an agreement.

Going into a negotiation, you probably have a good idea of how much or how little you are willing to spend; however, you need an idea of what your counterpart's highs and lows are to determine the ZOPA. Exploring or investigating your counterpart's interests or options will help you determine the ZOPA. Once the ZOPA is identified, the negotiation has a better chance of reaching an agreement.

Consider the Following Video...

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WARNING: The follow video contains language that may be offensive.

http://www.youtube.com/watch?v=MTf3YDNAT70