Split the Pie by Barry Nalebuff

Author:Barry Nalebuff
Language: eng
Format: epub
Publisher: HarperCollins
Published: 2022-01-17T00:00:00+00:00

You should be wary of agreeing to a “no-deal” deal. I concur that the parties shouldn’t end up with nothing, but this clever person has picked the no-deal scenario most favorable to their position. Were I representing Airline B or C, I would make a counterproposal and suggest that in case no deal happens, B and C get together. My caution is to be careful what you agree to in the event of no deal. You might think it’s always smart to have a better backup in case no deal happens. True, but that better backup ends up determining all the BATNAs and hence what will happen in the three-way deal.

The solution presented in scenario 2 might have been your first guess as the answer when there are three or more parties. It seems like the natural generalization of the answer presented in Chapter 9. Each party pays an equal share of the part of the runway it uses. In law this is called the Reaches method. In economics, this is the result of the Shapley value, a solution to multi-person negotiation problems developed by Lloyd Shapley (for which he was awarded the 2012 Nobel Memorial Prize in economics).

I, too, think it is a reasonable solution, but not the most reasonable one. Although there is something that seems fair about each party splitting the cost equally of what it uses, I don’t think this is the most likely result. Among the potential reasonable solutions, it gives the biggest possible gain to the weakest parties. Behind the answer is the implicit assumption that Airline A is just as likely as B or C to be part of a two-way deal if the three can’t come to an agreement.

If you think that in this situation B and C are likely to pair up first and then negotiate with A, then Airline A would end up paying half the cost of the first leg. While I might not want to admit it, even if I were Airline A, I’d put my money on B and C getting together if we didn’t reach a three-way deal.

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