The Bigger the Pie, the Bigger the Fight
Why creating value makes claiming value more important
I. The orange
Modern negotiation teaching has a favorite command:
Make the pie bigger.
Do not merely argue over positions. Find the interests underneath them. Look for differences in what the parties value, and use those differences to construct a better deal.
Getting to Yes, published by Roger Fisher and William Ury in 1981, helped make that approach the defining ideal of modern negotiation. Its most famous illustration is usually told as a story about two sisters and one orange.[1]
Both sisters want the orange. They argue and finally agree to split it.
One sister eats the fruit and throws away the peel. The other uses the peel to bake a cake and throws away the fruit.
Each received half of what she wanted. Each destroyed the other half. The waste occurred because neither sister asked why the other wanted the orange.
One wanted the fruit. The other wanted the peel.
The lesson is sound. Positions can conceal interests. Once the interests are known, what first appeared to be a conflict may become an opportunity for trade.
But the orange is constructed in a very particular way.
The sisters want different parts. The parts separate perfectly. And neither sister asks to be paid for the part she gives away.
That last assumption matters.
Nothing prevents the sister who wants the fruit from saying, “You can have the peel, but give me five dollars.” The parable simply removes that possibility. Once payment is excluded, the answer becomes nearly automatic: fruit to one sister, peel to the other.
The surplus appears to divide itself because the example has quietly assumed away the need to divide it.
That is part of what makes the orange such a good teaching device. It isolates the value of discovering interests. It is also what makes the orange unlike many real negotiations.
A creative agreement may generate value through price, timing, services, control, risk, warranties, confidentiality, or future opportunity. Those terms can make both sides better off. But they do not usually arrive with each party’s share already marked.
Someone still has to decide who gets what.
II. The Studebaker
In 2008, law professor Russell Korobkin published an essay with a deliberately provocative title: Against Integrative Bargaining.[2]
The title is sharper than his ultimate position. Korobkin favors creative, value-producing agreements. His argument is that negotiation theory has oversold value creation and undersold value distribution—especially in the negotiations lawyers conduct.
One of his sharpest examples involves a vintage Studebaker.
Ulysses wants Catherine’s 1930 Studebaker Commander Victoria. He has searched for years to find one in this condition. Catherine, meanwhile, rarely encounters anyone interested in buying it. Neither has a good substitute transaction available. Economists call this a bilateral monopoly: one realistic buyer, one realistic seller, and no easy alternative for either side.
Suppose Ulysses will pay as much as $40,000 and Catherine will accept as little as $39,000.
That creates $1,000 of cooperative surplus. Any price from $39,000 to $40,000 makes both parties better off than no deal. But the price determines who receives the thousand dollars.
At $39,000, Ulysses gets all of it. At $40,000, Catherine does. Every price in between divides it.
Now add one fact.
Catherine restores vintage cars as a hobby. She enjoys the work and would restore the Studebaker for $2,000. Restored, the car would be worth $60,000 to Ulysses.
The smart arrangement is obvious: Catherine should restore the car before the sale.
Her $2,000 cost raises Ulysses’s valuation by $20,000. The restoration therefore creates $18,000 in additional joint value.
It also changes the bargaining range:
Unrestored: $39,000 to $40,000
Total surplus: $1,000
Restored: $41,000 to $60,000
Total surplus: $19,000
Catherine’s minimum rises to $41,000 because the restored transaction must compensate her for both the car and the work. Ulysses’s maximum rises to $60,000 because that is what the restored car is worth to him.
A moment ago, the parties had $1,000 to divide. Now they have $19,000.
The pie has grown nineteenfold.
So has the fight.
These are not two unrelated consequences of the restoration. They are the same quantity viewed from two directions. The $19,000 is the value the deal creates for the parties together. It is also the value whose allocation remains unresolved.
The pie is the fight.
The obvious response is that this is a good problem.
It is.
Nineteen thousand dollars to divide is better than one thousand dollars. The restoration makes both parties better off, and nothing in this argument suggests that they should prefer the smaller deal.
But the fact that a problem is profitable does not mean it has been solved. The creative arrangement produces the surplus. It does not select a price.
Value creation does not replace distributive bargaining. It enlarges the field on which distributive bargaining occurs.[3]
III. “Win-win” is not a division rule
Suppose Catherine and Ulysses agree on a price of $42,000.
Catherine receives $1,000 above her reservation price for the restored transaction. Ulysses receives a car he values at $60,000 for $42,000, giving him $18,000 of the surplus.
Now suppose they agree on $59,000.
The result reverses. Catherine receives $18,000, and Ulysses receives $1,000.
Both transactions are win-win.
Both create all the available joint value.
Both are efficient.
They are not remotely the same outcome for either party.
“Win-win” answers one question: does each party prefer the agreement to its alternative?
It does not answer the next question: how much of the gain does each party receive?
Efficiency concerns the size of the surplus. Bargaining determines its distribution.
The orange makes those two questions look like one because, once side payments are excluded, the structure of the solution effectively determines the division. One sister receives all the fruit. The other receives all the peel. Nothing remains to price.
The Studebaker is different. Finding the efficient arrangement tells the parties to restore the car. It does not tell them whether the price should be $42,000, $50,000, or $59,000.
This is not an argument that Fisher and Ury ignored distributive questions altogether. Their method also directs negotiators to use objective criteria when interests conflict. It is an argument about the lesson the orange has come to represent: the idea that once negotiators discover the clever structure, the important work is largely finished.
Sometimes it has only become more important.
IV. The silent split
Distribution does not disappear merely because the parties are not openly arguing over a price.
Korobkin gives another hypothetical involving a divorcing couple, Harold and Wendy. They own two properties with roughly equal market values: a townhouse in the city and a cottage in the country.
Wendy loves city life and dislikes the country. Harold loves the country and dislikes the city.
Korobkin stipulates that if they cannot agree, both properties will be sold and the proceeds divided equally. The value-producing arrangement is therefore clear: Wendy should keep the townhouse, and Harold should keep the cottage.
Each receives the property that person values more. Selling both properties would destroy that subjective value.
But the efficient allocation does not determine whether one spouse should compensate the other.
Wendy would rather keep the townhouse and pay Harold something than lose it in a forced sale. Harold would rather keep the cottage and pay Wendy something than lose that property. A side payment could therefore run in either direction.
Who pays whom?
How much?
The discovery that the spouses have different preferences does not answer those questions.
Korobkin suggests that a natural outcome may be for each spouse to keep the preferred property without exchanging any cash or other assets. That result feels equal because the properties have similar market values. It is simple. It is a salient focal point. It may also fit the customary expectations surrounding that kind of division.[4]
But zero is still a number.
“No payment” is one possible allocation among many. It is not dictated by the fact that Wendy prefers the townhouse and Harold prefers the cottage.
A distributive decision can be made through a fairness norm, a custom, a default, or an outcome that simply feels obvious. It does not require threats, anger, or raised voices.
The fight can be silent.
V. The pie may already be baked into the form
Korobkin makes a second point that is especially important for lawyers: not every apparently creative term creates new value when measured against the real transaction the parties would otherwise make.
An agreement is integrative only relative to a baseline. Korobkin proposes using the customary transaction in that setting as the baseline rather than an artificially stripped-down deal.[5]
Consider floor mats in a car sale.
If buyers generally value floor mats more than they cost dealers to provide, manufacturers and dealers will tend to include them in the standard package. Once that happens, the salesperson who leaves the mats in the deal has not personally discovered a new source of value. The efficiency has already been identified and incorporated into the customary transaction.
The form is where yesterday’s creative trade becomes today’s baseline.
That does not mean custom has made every transaction perfectly efficient. A particular buyer may dislike the floor mats. A particular seller may face unusual costs. Removing a customary term—or adding a noncustomary one—may still create value when the parties have distinctive preferences.
The point is narrower: the incremental value attributable to a negotiator’s creativity may be much smaller than a classroom hypothetical suggests, because real transactions inherit decades of accumulated experience.
Korobkin illustrates the same point with a merger involving a technology company whose value lies largely in its patent portfolio. The buyer may value a representation that the seller knows of no current challenges to those patents, accompanied by an indemnity if a later challenge causes harm.
The first lawyer to devise such a structure may have created substantial value. The seller has better information about the risk, and its promise may reassure the buyer at a lower cost than the value of that reassurance to the buyer.
But once representations and indemnities of that kind become customary, retaining them in the agreement is no longer a fresh integrative achievement. Their value has been absorbed into the baseline deal.[6]
This matters because lawyers often enter a transaction after the business principals have settled its basic structure and price. The lawyers are then asked to “paper the deal.” By that stage, walking away may carry significant financial and reputational costs, and the lawyer who recommends doing so risks being labeled a deal-killer.
The room to redesign the transaction may have narrowed. The distributive consequences of the remaining terms may nevertheless be substantial.
This produces a double correction to the usual classroom picture. Some of the most obvious integrative value may already be embedded in customary practice. At the same time, the parties may still have a large amount of value—and risk—to allocate through the contract.
The pie may already be baked.
Someone still has to cut it.
VI. Create it. Measure it. Claim it.
The practical lesson is not to stop searching for value. It is to treat value creation and value distribution as separate, complementary tasks.
First, find the arrangement.
Who values speed more than price? Who values certainty more than upside? Who values control more than cash? Who can bear a risk more cheaply? Who can perform work for less than it is worth to the other side?
Those differences are the raw material of integrative bargaining.
Second, measure what the arrangement actually adds.
Compare the proposed structure with the real baseline—not merely with the simplest transaction one can imagine. How does the new term affect each party’s reservation point? Does it create new joint value, or merely shift value or risk from one side to the other? Is the apparent efficiency already reflected in custom or in the form?
In the Studebaker example, restoration adds $18,000 in new surplus and brings the total surplus to $19,000. Those are different numbers, and the distinction matters.
Third, negotiate the division deliberately.
That may mean negotiating price. It may mean allocating risk, control, time, remedies, warranties, credit, or future opportunity. The distributive work may occur through an anchor, a stronger alternative, an external standard, a fairness norm, or a focal point.
Distributive bargaining is not limited to extreme demands and grudging concessions. It can be careful, principled, quiet, and entirely professional.[7]
Nor does claiming value require trying to capture every available dollar without regard to anything else. A negotiator may deliberately accept a smaller immediate share in exchange for speed, reputation, fairness, reduced risk, or a continuing relationship.
Those are distributive choices too.
The mistake is not generosity. The mistake is failing to recognize that a choice is being made.
The recurring failure is subtler. A negotiator discovers an elegant structure. Everyone feels collaborative and sophisticated. Asking for a larger share then feels like spoiling the achievement—as though discussing distribution would be a retreat into a cruder form of negotiation.
So the negotiator stops.
But the division does not stop. It is made through the other side’s proposal, the first number, the customary term, the default rule, or the compromise no one examines.
Not naming a price is not neutral.
It means the price will be set some other way.
VII. The orange, revisited
The sisters did well because they discovered their different interests.
But understanding interests completed the negotiation only because the orange had unusually convenient properties. One sister wanted the fruit. The other wanted the peel. The object separated cleanly, and the story excluded payment.
Many deals will not peel apart so politely.
The creative arrangement will produce value in the form of money, risk, time, control, or obligation. That value will still have to be assigned.
Make the pie bigger.
Then stay for the cutting.
Footnotes
[1] Roger Fisher & William Ury, Getting to Yes: Negotiating Agreement Without Giving In (1981), ch. 4. Later editions add Bruce Patton as a co-author. Fisher and Ury describe the disputants as “proverbial sisters” or “children,” depending on the edition. The additional observation here—that the parable also excludes side payments—is my own.
[2] Russell Korobkin, Essay: Against Integrative Bargaining, 58 Case W. Rsrv. L. Rev. 1323, 1323–25, 1341–42 (2008). Korobkin calls his target the “integrative bargaining supremacy” claim. The juxtaposition of his argument with the orange parable is mine; his essay does not discuss the orange.
[3] Id. at 1335–36. Korobkin’s restoration hypothetical uses the $39,000 and $40,000 reservation prices, the $2,000 restoration cost, and the $60,000 restored valuation. He concludes that the parties must then agree on a price from $41,000 to $60,000.
[4] Id. at 1336–37. Korobkin characterizes the no-payment outcome as an empirical conjecture and identifies equality arguments, focal-point salience, and custom as possible reasons for it.
[5] Id. at 1326–27, 1334–35. Korobkin defines an integrative agreement by comparison with the kind of agreement customary under the circumstances and uses floor mats to illustrate both the potential and the limits of adding issues.
[6] Id. at 1339–41. Korobkin’s merger example involves patent-related representations and indemnification. His point is not that those terms lack value, but that their value may already be incorporated into customary transactional practice.
[7] Id. at 1341–42. In his conclusion, Korobkin notes that sophisticated distributive bargaining may include improving alternatives, understanding the counterpart, invoking external and social norms, and cultivating a reputation as a fair and honorable negotiator.