Module 3 - Background Zone of Possible Agreement The process in finding the Zone of Possible Agreement requires a little bit of detective work in order to make it work. It begins with a proposal by a person, commercial entity, or organization known as a 'Proponent '. Essentially, this is the person who puts an offer on the table. The receiving end of a proposal is known as a ' Prospect '. This is the person or entity who considers the merits of the offer or proposal. The prospect will accept the proposal, make a counter proposal/offer, or outright reject it. This is where the game begins to get seriously fun.  The proponent is trying to sell us something. This can be a product, a business idea, services, an organizational concept or a combination of these things. The proponent is more commonly called the ' seller '. The prospect, on the other hand, is more commonly called the ' buyer '.  The seller wants to get the maximum amount possible for their proposal, but generally may also set a limit for the least amount they will accept. The least amount they are willing to accept is known as the seller's 'Reservation Price'. This is the amount where they draw the line, also know as the ' walk away ' from the deal point. The buyer, on the other hand, wants to pay the least amount possible , but may consider a higher amount that they might be prepared to pay as well. The maximum amount they are prepared to pay is also known as the buyer's ' Reservation Price ' or ' walk away ' from the deal point.  The differences between these respective lows and highs of both the seller and buyer are their range of expectations. When you have a common ground or overlap between these two different ranges, this is known as ZOPA or the Zone of Possible Agreement .  Of course, common sense dictates that if there is no overlap in the expectation ranges of the seller and buyer, agreement becomes highly unlikely. Similarly, even where ZOPA exists, the agreement might still not materialize, when the parties are unable to agree regardless. The letter 'P' in ZOPA meaning a possible agreement, will more probably occur, but it's not a definite.  An illustration might make this clearer. Fiona intends to sell her business. She advertises her business for $30,000, which is her highest expectation on what she has determined as the optimum value, but will let it go for as low as $25,000, being her reservation price.  Gerald is interested, but he can only afford to pay $27,000 which is his reservation price, and so he makes a tentative first offer of $24,000. Neither of them knows the reservation price of the other.  The overlap range or ZOPA lies between $25,000 and $27,000, which is the comfort area where the two parties might be able to come to an agreement. Even if Fiona convinces Gerald to enter her seller's range, she might still opt to hold out for a better offer from someone else.  The ideal piece of information would be the other party's reservation price..

1. Module 3 - Background
Zone of Possible Agreement
The process in finding the Zone of Possible Agreement requires
a little bit of detective work in order to make it work. It begins
with a proposal by a person, commercial entity, or organization
known as a
'Proponent
'. Essentially, this is the person who puts an offer on the table.
The receiving end of a proposal is known as a '
Prospect
'. This is the person or entity who considers the merits of the
offer or proposal. The prospect will accept the proposal, make a
counter proposal/offer, or outright reject it. This is where the
game begins to get seriously fun.
The proponent is trying to sell us something. This can be a
product, a business idea, services, an organizational concept or
a combination of these things. The proponent is more commonly
called the '
seller
'. The prospect, on the other hand, is more commonly called the
'
buyer
'.
The seller wants to get the
maximum amount possible
for their proposal, but generally may also set a limit for the
least amount they will accept. The least amount they are willing
to accept is known as the seller's 'Reservation Price'. This is the
amount where they draw the line, also know as the '
walk away

2. ' from the deal point.
The buyer, on the other hand, wants to pay the
least amount possible
, but may consider a higher amount that they might be prepared
to pay as well. The maximum amount they are prepared to pay
is also known as the buyer's '
Reservation Price
' or '
walk away
' from the deal point.
The differences between these respective lows and highs of both
the seller and buyer are their range of expectations. When you
have a common ground or overlap between these two different
ranges, this is known as
ZOPA
or the
Zone of Possible Agreement
.
Of course, common sense dictates that if there is no overlap in
the expectation ranges of the seller and buyer, agreement
becomes highly unlikely. Similarly, even where ZOPA exists,
the agreement might still not materialize, when the parties are
unable to agree regardless. The letter 'P' in ZOPA meaning a
possible agreement, will more probably occur, but it's not a
definite.
An illustration might make this clearer. Fiona intends to sell her
business. She advertises her business for $30,000, which is her
highest expectation on what she has determined as the optimum
value, but will let it go for as low as $25,000, being her
reservation price.
Gerald is interested, but he can only afford to pay $27,000

3. which is his reservation price, and so he makes a tentative first
offer of $24,000. Neither of them knows the reservation price of
the other.
The overlap range or ZOPA lies between $25,000 and $27,000,
which is the comfort area where the two parties might be able to
come to an agreement. Even if Fiona convinces Gerald to enter
her seller's range, she might still opt to hold out for a better
offer from someone else.
The ideal piece of information would be the other party's
reservation price. It is generally believed that you should never
reveal your own reservation price. The real trick is trying to
find that sweet range of ZOPA.
Source:
Negotiation.com
, Retrieved on November 27, 2012.
Module 3 - Case
Zone of Possible Agreement
Assignment Overview
The Panama Canal Negotiations
The completion of the Panama Canal is one of the world’s great
engineering feats. The negotiations to complete and build this
vital connector between two oceans spans decades. The cost in
human lives, suffering, and capital staggers the imagination.

4. It all began in 1847 when the United States entered into a treaty
with New Granada (later to be known as Colombia), which
allowed the U.S. a transit passage over the Isthmus of Panama.
The treaty guaranteed Panama’s neutrality and recognized that
Colombia would have sovereignty over the region.
Nothing really occurred with this development and ultimately, a
French company called the Compagnie Nouvelle du Canal de
Panama acquired the contract to build the canal in 1881. By
1889, the Compagnie had gone bankrupt and had lost roughly
$287 million U.S. along with approximately 20,000 lives in the
process. It is also in 1889 that the U.S. had become convinced
that the canal passage was absolutely vital to their interests.
They appointed Rear Admiral John Walker to head the
Commission and choose the most viable route.
Naturally, the U.S. was interested in the Panama route already
started by the French. The French company, which had been
heading for bankruptcy, saw the writing on the wall before their
bankruptcy in 1889, and had entered into negotiations with the
U.S. The French company was eager to extricate themselves
from the project. At the time, their holdings included land, the
Panama Railroad, 2,000 buildings, and an extensive amount of
equipment. They felt their total holdings should be valued
around $109 million U.S., but Rear Admiral Walker estimated
them to be not greater than about $40 million U.S., a significant
difference.
As negotiations progressed, the Americans began to hint that
they were also interested in the possibility of building an
alternative canal in Nicaragua. The French countered the ploy
by claiming that both Great Britain and Russia were looking at
picking up the financing to complete the canal’s construction. It
was subsequently leaked to the U.S. press, much to the French
company’s pique that the Walker Commission concluded that
the cost to buy out the French company was too excessive and

5. recommended the Nicaraguan route.
A couple of days after this news, the president of Compagnie
Nouvelle resigned. The resulting furor caused the stockholders
to demand that the company be sold to the U.S. at any price
they could get. The Americans became aware that they could
now pick up all the French holdings for $40 million. However,
the Walker Commission had not just been a ploy by the
Americans: the Nicaraguan route was actually a serious
proposal that had a lot of backing in the U.S. Senate. President
Roosevelt had to engage in some serious political maneuverings
to get everybody on board the Panama passage. The Walker
Commission changed its recommendation to favour Panama as
the canal route.
But the story does not end there. Next, the U.S. signed a new
treaty with Colombia’s charge d’affairs which gave the U.S. a
six-mile area across the Isthmus and agreed to financial
remuneration that was to be paid to Colombia. The Colombian
charge d’affairs had signed the treaty without communicating
with his government. The treaty was rejected by Colombia. In
the meantime, revolution against Colombian authority was afoot
in Panama. Since they believed they had signed a legitimate
treaty, Roosevelt sent warships to the area to negate the
Colombians, and thus secured U.S. interests, and offered aid to
the Panamanians in their quest to separate from Colombia.
Panama succeeded in their revolt and became a republic. In
1914, the Panama Canal was opened.
Assignment Instructions
Turn in a 2-page paper (page count does not include cover or
reference list) addressing the following questions:
1.

6. By 1889, how much had the The Compagnie Universelle du
Canal Interoceanique lost in building the canal? How much did
they demand when they first entered the negotiation?
2.
How much would the U.S. pay the French company?
3.
Since there is a huge difference, what are the tactics they played
to justify their claims?
4.
What dramatically changed the whole situation so the U.S. won
the negotiation?
5.
How did the U.S. secure its own interests? Any additional
comments from this Case?
Assignment Expectations
1.
Answer questions with clarity.
2.
Show depth and breadth to enhance the quality of your paper.
3.

7. Search in our library to find some papers/articles to support
your argument and show them in the reference list.
Turn in your at least two page answers by the Module due date.
Module 3 - SLP
Zone of Possible Agreement
Assignment Instructions
Think about a business situation where you need to negotiate.
Describe this process and illustrate how the Zone of Possible
Agreement could help you negotiate. Be as specific and detailed
as possible.
Consult background readings, browse our library to find more
articles, and check relevant websites to support your argument.
SLP Assignment Expectations
1.
Answer questions with clarity.
2.
Show depth and breadth to enhance the quality of your paper.
3.
Search in our library to find some papers/articles to support
your argument and show them in the reference list.
Turn in your 2-page paper by the module due date.