July 17, 2023
Negotiating with a monopoly can be challenging but being proactive with your planning will help you influence the balance of power and create real value.
The article was written with the help of Adam Frampton, an Associate partner at The Gap Partnership.
Anyone who has played a game of family Monopoly will have also experienced the tantrums that inevitably go with it. The frustration when you land on another player’s hotel (usually belonging to that sibling that always wins) and have no choice but to pay the extortionate amount they are charging for your visit. I had to endure exactly this during Christmas 2017 when I was at home with all the family.
And it got me thinking about how sometimes that same feeling of frustration can be experienced during a monopoly negotiation. It can seem as though you have no choice over how much you will have to pay.
But it doesn’t have to be like this. There are ways you can create value in this type of negotiation, even with a monopoly supplier or client.
But first we must understand what a monopoly negotiation is, and why they exist. The monopoly normally arises when there is a lack of competition between suppliers. This typically happens because there are barriers preventing other companies entering into the market. Instances where monopolies can arise include:
1. Sole ownership of a product in demand. For example, a drug manufacturer who acquires a patent that protects their sole production of that medicine for several years.
2. Receipt of a government contract. The awarding of a rail franchise contract effectively creates a monopoly for the winning recipient allowing them to control prices.
3. Natural monopoly. For example, the Suez Canal commands control over the transportation of goods by sea between the Indian Oceans and the North Atlantic Ocean, connecting the East to the West.
So it’s clear that a monopoly negotiation is one where there is only one supplier of goods or service which limits the options you have in the negotiation. This creates a challenge, because the more options you have, the more leverage you can gain through a BATNA (“best alternative to a negotiated agreement”). Options give you the perception of power in a negotiation and without them, if a monopoly is left unchecked, the negotiation can be steered in a direction that doesn’t benefit you.
So, back to the original question - how can you create value in a monopolistic negotiation?
Firstly, ask yourself whether you are in a real monopoly, or do you in fact have BATNAs? If we look at one of our previous examples, the Suez Canal - is this a true monopoly? After all, ships could travel around the Cape of Good Hope (though this would add significant cost).
Once you have qualified that you are definitely in a monopoly negotiation, then you can begin to look at how you can create value. This can be simplified into 7 categories:
Consider if you can change the dynamics of the market. There may not be another supplier of the goods/service in this particular market, but is there a similar supplier in an adjacent industry? Can you work with them and/or introduce them to your counterpart? This could reshape the market you are working within, and also allow you to work in some concessions that are beneficial to you.
Assess what levels of interdependency there are between you and your supplier. Is there a way you can shift the perception of the value of alternative suppliers? Creating proposals with performance incentivised triggers could help to increase their dependency on you. What if you reach deadlock? Consider the impact this could have on both your business, and theirs.
The more information you have, the more you can understand the drivers that matter to them. That helps you to know what levers you can use to push to progress your own agenda and ultimately drive value. What pressures are they currently under? Is there a reason to their demands? Is this the right time to initiate negotiations for both you and them?
Remember…people negotiate with people. What is it about the person you negotiate with that you can use to drive the value for the negotiation? If they have a sense of fairness, can you use that? Understand the individual on the other side of the negotiation table - have you dealt with them for a long period of time? What is the strength of the relationship? If you’ve considered the type of personality they have then you may be able to use that to master the fine art of letting them have your way.
Get creative. Being creative isn’t just about that colourful piece of artwork at the local gallery - you can also bring it to the negotiation table. What additional variables can you bring to add value to the final deal? And indeed what additional variables can they bring to the table? Consider what may be important to them and share information to seek opportunities that you can explore as additional variables.
If you are struggling to drive value with a particular individual, then look to involve additional parties. A second pair of eyes could help you emphasise the importance of both parties in the negotiation. Also consider if the person you are dealing with is empowered to make a decision on the creative proposals you’ve made. Introducing a new face to the negotiation can help to reach an agreement and avoid deadlock.
If you have an adjacent business that is also in negotiations with your counterpart, you could look to create a consortium. This can help you to shift the balance of power enabling terms that benefit the consortium. There must be alignment across the companies and a level of governance to protect your interests, but in the right circumstances, consortiums can be a useful tool in creating value in these negotiations.
In conclusion, monopoly negotiations are a common trait of modern business, but don’t be disheartened. There are steps you can take, plans and preparations you can commence, in order to create value. If you are proactive and develop a negotiation strategy that helps you to shift the balance of power, then a monopoly negotiation doesn’t need to be frustrating, but an opportunity to be creative and increase value.
