Memo 1 The Texoil simulation

To: Prof. Seth Freeman

From: Juan Fernandez
Phone: 347-497-2486
Email: jmf2244@columbia.edu
Date: 1/26/2017
Section: SIPA
Re: Texoil Simulation; I was in the role of Seller
cc: Marisol Grau

1. The deal reached

The Price: $150,000
Texoil will provide a $80,000 loan with a 20% interest rate to the
Seller
After 1 sabbatical year, Texoil will hire the Owner for an annual wage
of $50,000.

2. Interests
a. My interests

Obtain $225,000 cash from the transaction, to travel with my

wife
Get 1 sabbatical year to travel
Get a job paying me at least $40,000 yearly

b. The other persons interests

Buy the service station at a low price, maybe below 180,000

Hire me as employee of Texoil

3. Lessons
a. Interests of people are multiple and should be extensively
explored to make good proposals. Even when price (the position)
seemed as the only variable of the game, my opponent and me
wanted many other things. It is not easy to fully understand our
own interests, let alone the others. It is important to state what I
really want to get from the negotiation beforehand, going beyond
just money. It is equally important to understand what the
opponent wants, and even help her define it. Listening is a key
skill in this regard.
b. It is important to explore creative solutions. As demonstrated by
the deals reached by different people in the class, there are
dozens of different and equally satisfactory deals that can be
reached. It is only a matter of experimenting.
c. Playing a role for the opponent could be effective. My opponent
was (acting or truly) confused about the financial terms of the
deal. That put me in the position of finding something very
appealing for her to accept.
 Memo 1 The Texoil simulation

d. Playing hard on the issue pays. My opponent was hawkish and I

think she got a good deal because of that. She was ready to let the
deal die because she was not happy with my proposed interest
rate for the loan (T-bills X2). She acted like she did not care,
actually standing up no write no deal in the blackboard, while I
was anxious to reach an agreement. That is when I agreed to rise
the rate to 20%.
e. In negotiations with money involved, financial expertise is key.
Money today and money tomorrow have a financial equivalence, if
a suitable interest rate is taken into account. The 200,000-225,000
gap was unsurmountable if considered in cash terms, but not if
you instrument a flow of payments. Financial skills are important
to quickly understand this.
f. You can find leverage in dividing the agreement in independent
pieces or taking it as a whole. She wanted to reach an agreement
on the $150,000 price and leave the rest subject to further
discussion. I wanted to treat it as a whole. I her proposal
prospered, I would have been in a much difficult position to
negotiate latter.

4. Marisol Graus performance

I think she did a very good job. She played calm and strong on the topics
that she was interested in.
a. Something good:
i. Playing hard on the topic. She seemed indifferent to
whether or not we reached a deal. As I was more anxious
about it, leverage was on her side and she used it.

b. Something improvable:
i. She seemed not very sure about the financial terms of the
negotiation. She thought she was not getting a good deal
when, from my point of view, it was a good one. She could
have lost an opportunity if the negotiation failed.