Archive: January, 2013

Let the games begin

Last year I was invited to a round table event hosted by Purcon that included a training session on negotiation. Most of the people were senior procurement professionals including a number of CPOs. Given the audience, I expected the trainer to refer to some of the theory that underpins negotiation but it was notable by its absence. This led me to think about some of the theory I’ve come across in the past and do some further research. My brief investigation lead me to conclude that there was very little research on the application of game theory to negotiation and nothing on application on game theory to procurement.

I was fortunate to meet Dan Crease at the round table event. He has studied game theory in detail and was the ideal person to collaborate with on an article for Supply Management.

In summary, the article in January’s Supply Management covers two scenarios. The first is a one-off negotiation, or single play. Game theory describes this in the prisoner’s dilemma. The evidence suggests that non-cooperative or opportunistic behaviour is the dominate strategy. The second scenario is more familiar to the professional purchasers, where there are many negotiations over a period of time, or repeat plays. The evidence suggests that cooperative behaviour is more common and the parties can improve the outcome by fulfilling promises, communicating effectively and sharing relevant information. The article goes to look at the way these scenarios can be found in sourcing, category management and supplier management.