L4M5 Sample Questions Answers

Buying organisation may increase its leverage with suppliers by concentrating spend. Supplier spend consolidation can take many forms as outlined below:

Vendor base reduction: straightforward reduction of number of suppliers in any category

Volume pooling: pooling cross organisational requirement until your order volume is high enough to attract new bidders/additional discounts

Volume redistribution: making recommendations following spend analysis to move from one supplier to another

Volume consolidation across categories: certain purchase requirements may be common across a number of categories

Standardisation and harmonisation of specifications: analysis of specifications and standards for a high spend purchased input, may show that there is a little difference between them and that the specification can be standardised or at least harmonised across the group or across national, regional or global operations.

Forming purchasing consortia: buyers may decide to come together and combine their purchase volumes to attract better deals.

A push approach typically involves exerting authority or power (1) with the party being influenced generally aware of the influence process (3). This method involves overtly directing or persuading the other party, often through explicit information or directives, as per CIPS’s understanding of push influence techniques.

Framing and re-framing (C) and Anchoring (E) are powerful influencing techniques:

Framing and re-framing (C): This technique shapes how information is presented to make specific aspects more compelling or relevant.

Anchoring (E): Anchoring sets an initial reference point, which influences how subsequent information is perceived.

These techniques help negotiators control the flow and focus of discussions, aligning with CIPS recommendations for strategic influence in negotiations.

Zone of Potential Agreement (1) and Walk-away point (3) are key elements in negotiation planning. Establishing a Zone of Potential Agreement helps identify where interests align, while the Walk-away point sets the limit of acceptable terms. Both are essential to preparing a negotiation framework that benefits both parties, as per CIPS best practices.

The relationship spectrum categorizes supplier relationships based on factors like strategic importance, allowing organizations to tailor their approach to each supplier relationship. CIPS emphasizes the relationship spectrum as a valuable tool for assessing and managing supplier interactions based on strategic relevance.

Trust-destroying behaviours:

- Rumours of partnership or relationship breaking down

- Emotion-based assessment of performance

- Avoiding accountability, passing the blame to others

- General mood – resentment, distrust, frustration, etc

LO 1, AC 1.4

Dynamic pricing is the practice of dynamically calculating the price of a product or service in order to incorporate real-time market conditions, input costs, and/or competitive perspectives. Dynamic pricing which is based on marginal costing, is used by airlines and many other organisations.

Marginal cost is the cost of producing an additional unit of output. Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.

Integrative negotiation is a negotiation strategy in which the involved parties work together to find a solution that satisfies the needs and concerns of each. This process often involves group brainstorming and creative thinking for individuals to suggest different ideas that benefit both parties.

Compromising is often common in integrative negotiation, and both sides may need to give up certain needs to reach a solution. Honesty can also promote successful integrative negotiation because it can lead to a comprehensive understanding of the issue and what each party needs to be satisfied with the result.

If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lower prices. Below are 7 types of saving levers:

Effective listening is crucial in integrative negotiations because it promotes understanding and collaboration. By actively listening, parties can identify shared interests and address concerns, which supports the goal of reaching mutually beneficial solutions. This is a key component in CIPS guidelines on successful integrative negotiation practices.

Mark-up is the amount added to the cost of an item to get to its selling price and is expressed as a percentage.

Mark-up (%) = (Price - Cost) / Cost x 100

= (100 - 9 - 51 - 24) / (9 +51 +24) x 100 = 16 / 84 x 100 = 19.04%

LO 2, AC 2.1

Essential goods and services such as electricity, fuel, basic food stuffs, commuter transport and habitual products such as tobacco, alcohol and sugar-based drinks are often sited as facing a relatively inelastic demand curve. This means when the price goes up, the quantity demanded does not decrease very much and so they are often the target of government taxation.

LO2, AC 2.2

'Macroeconomic factors always directly influence the negotiations': This statement is false. For any given negotiation it is not the macroeconomic factor itself that necessarily influences the negotiation but the change or rate of change that factor.

'Changes in macroeconomic factors may affect businesses and individuals differently': This statement is true. Macroeconomic factors are factors that have general effects on the economy and many businesses may be completely unaffected or affected more or less than others in the same industry by a change in a factor.

'Macroeconomic factors cannot be influenced by anyone's expectation or sentiment': This statement is false. When it comes to macroeconomic factors another key consideration is expectation regarding what might happen to these factors, or specifically the measures, metrics or percentage rates associated with these factors in the future.

'Expectations on macroeconomic prospect are always correct': This statement is false. Expectations are not always correct.

LO 2, AC 2.2

A supply curve will slope upward from left to right showing more supply at higher prices, as illustrated in the graph below:

A movement along the supply curve will be brought about by a change in price, but a shift of the whole curve will be caused by a determinant other than price:

- The physical feasibility and time and energy required to produce the products

- Technology and innovation

- The objectives of the producers and their future expectations

- Prices of other goods and services

- Government's policies

LO 2, AC 2.2

There are many tactics and ploys that can be used to persuade others, particularly those not trained in negotiation. But in general these tactics should be used with care, as they can backfire; and in situations where a long-term relationship is desired, they can be, if detected, become an irritant to TOP.

Tactics are particularly effective if and when you are dealing with untrained negotiators, in consumer's buying situation and in once-off encounter.

The Myers–Briggs Type Indicator (MBTI) is an introspective self-report questionnaire indicating differing psychological preferences in how people perceive the world and make decisions. MBTI indicates personality preferences in four dimensions.

The Thomas–Kilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual's response to conflict situations.

Mill's RESPECT mnemonic is set out by Harry A. Mills which describes seven steps to agreements

An intelligence quotient (IQ) is a total score derived from a set of standardized tests designed to assess human intelligence.

Trust-building behaviours are as following:

Joint-effort issue resolution

Open sharing of information

Open and honest discussion on root cause of failures

Joint planning focusing on value for money and risk sharing

Commercial transparency and co-proposition of cost reduction and service improvement programmes

Joint recognition and celebration of successes

To achieve a win-win (integrative) negotiation, Sally should accept the 5% discount on the aftercare package (B), as it meets her objective for a total discount while respecting the supplier's limitations. This approach demonstrates flexibility and is in line with CIPS principles on integrative negotiations, where both parties achieve value in different forms.

Negotiating at the supplier's site can give the supplier a psychological advantage due to their familiarity with the setting. To ensure a neutral and balanced negotiation environment, it’s preferable to conduct negotiations in a neutral location or through structured channels, as recommended in CIPS's guidance on negotiation settings.

Supplier conditioning is the process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances. Within a negotiation, the buyer needs to make sure that the supplier has a number of messages in mind, about the outcomes that the buyer needs to achieve and about the shared sense of purpose that buying organisation has in achieving these outcomes.

Supplier appraisal is a process of evaluating a supplier's ability to carry out a contract in term of quality, delivery, price and other contributing factors.

Supplier positioning is the process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the right strategy.

Supplier selection is the process of selecting a supplier to acquire the necessary materials to support the outputs of organisations. Selection of the best and/or the most suitable suppliers is based on assessing supplier capabilities (Shih et al., 2004).

In difficult negotiations and disputes, hardball tactics like punishment and threats often seem like the only way to win concessions. Some negotiators seem to believe that hardball tactics are the key to success in any negotiation. They resort to extreme demands and even unethical behaviour to try to get the upper hand in a negotiation.

The following are 8 typical hardball tactics:

1. Good cop / Bad cop

2. Low ball / High ball

3. Bogey

4. The Nibble

5. Chicken

6. Intimidation

7. Aggressive Behaviour

8. Snow Job

You can read the details of each tactic here.

In the contrary to hardball tactics, negotiators can adopt integrative approach to the negotiation. Some of integrative tactics are:

1. Expand the Pie

2. Bridging

3. Post Settlement –Settlement

Et cetera

A useful and simple shorthand for preferred negotiation styles is summarised by four simple descriptor: 'warm', 'tough', 'logical' and 'dealer', which can be applied to describe individuals' dominant preferred style in most circumstances.

Warm - a people person

Tough - a hard-nosed negotiator

Logic - a numbers person

Dealer - a trader who loves bargaining

Strengths, weaknesses of dealer style are described below:

LO 2, AC 2.4

Competitive bidding is generally recommended for high-value or complex purchases where the cost and time required for the bidding process are justified. For low-value, routine items like pens, the time and resources required for competitive bidding may outweigh the potential cost savings, as noted in CIPS best practices. Hence, Option C is the best answer.

Procurement can negotiate various aspects of a purchase requisition even without a formal value analysis. While value analysis can enhance cost-effectiveness, procurement professionals often negotiate on pricing, terms, and conditions to add value independently of value analysis, as per CIPS’s guidelines on procurement flexibility in negotiations.

Macroeconomic indicators are statistics or data readings that reflect the economic circumstances of a particular country, region or sector. They are used by analysts and governments to assess the current and future health of the economy and financial markets.

Macroeconomic indicators will vary in their meaning and the impact that they have on the economy, but broadly speaking there are two main types of indicator.

- Leading indicators, which forecast where an economy might be heading. They are often used by governments to implement policies because they represent the first phase of a new economic cycle. These include the yield curve, interest rates and share prices.

- Lagging indicators, which reflect an economy’s historical performance and only change after a trend has been established. They are used to confirm a trend is underway. These include gross domestic product (GDP), inflation and employment figures.

There is also the category of coincident indicators, but these are generally grouped in with lagging indicators as they either happen at the same time or after an economic shift.

The best macroeconomic indicator to watch will heavily depend on your personal preferences, what positions you are taking and which country your portfolio is focused on. However, there are some very common indicators that most traders and investors will keep an eye on.

For simplicity’s sake, we have split these out into leading and lagging indicators.

Top leading indicators:

1. The stock market

2. House prices

3. Bond yields

4. Production and manufacturing statistics

5. Retail sales

6. Interest rates

Top lagging indicators:

1. GDP growth rates

2. The Consumer Price Index (CPI) and inflation

3. Currency strength and stability

4. Labour market statistics

5. Commodity prices

A procurement professional may find stock market data from the security exchange, while most lagging indicators (such as GDP, CPI, unemployment rate, currency and inflation rate, etc) can be found from government statistics data.

Using threats is generally inappropriate in strategic supplier negotiations where a long-term, trust-based relationship is required (C). Threatening tactics can damage the relationship and may result in resistance from the supplier. CIPS advocates for collaborative approaches in strategic relationships to foster mutual trust and achieve sustainable agreements.

According to Paul Steele's 'The Seller's Perspective', customer can be classified into 4 categories as below:

To increase the leverage in negotiation, buyer may increase its attractiveness and/or increase spend value. In this scenario, the buyer is already attractive to supplier as it always pays on-time, but the spend is still low. So to have greater leverage, the buyer has to increase its spend volume by spend concentration. Spend concentration may take many forms as following:

- Vendor base reduction

- Volume pooling

- Volume redistribution

- Volume consolidation across categories

- Standardisation and harmonisation of specifications

- Forming purchasing consortia

LO 1, AC 1.3

In the scenario, the main cost driver is suppliers' mark-up. The priority should be limit the margin to be added. XYZ Ltd can agree “cost plus” contracts with their suppliers to ensure no IT product purchased exceeds an agreed maximum margin level. Procurement teams can use their benchmarking tools to police these contracts. Cost plus contracts are agreements where the contractor's pricing is based on itemising allowable costs and then adding an agreed margin.

Market penetration pricing - pricing low to win a large share of the market

Market skimming - pricing a new product high in order to make a large profit from the purchases by initial customers. This is an effective strategy only in the absence of competition.When competition appears, market skimmers usually drop their prices

Premium pricing - usually pricing high because the market is prepared to pay extra for the kudos associated with the product, thanks to, say, a reputation for quality, or a highly fashionable brand name, and so on

Bargaining is the negotiation stage where tradeables are typically introduced and discussed. During this phase, both parties exchange offers and concessions, using tradeables such as lead times and order quantities to find a mutually acceptable agreement. This aligns with CIPS's guidance on the stages of negotiation.

There are multiple sources of divergent positions that can arise in situations where money is exchange for goods and services. There are 2 different types of sources. Those that arise from the content or subject matter of the negotiation (what is being negotiated) and those that arise from the process of negotiation (how it is being negotiated).

Sources of divergent position - the content of negotiation:

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Cultural differences are the source of conflict in the process of negotiation.

Requisition is an internal document raised by user or store to communicate to procurement the need to buy the product or service specified. This is merely a internal document.

Framework arrangement is a rather loose set-up, without any legal standing. It usually occurs when an organisation has decided for itself to limit the number of suppliers it is willing to work with and, through a purely internal process, sets up an approved list of such suppliers.

LO 1, AC 1.1

A business negotiation agenda is a formal agreed upon list of goals to be achieved or items to be discussed in a particular order during a meeting or negotiation. Agendas can be formal and obvious, or informal and subtle in negotiations.

The agenda is one of the main structural elements of negotiation, in addition to such questions as site, identification of participants, and elements of timing. Together, they answer the who, what, when, and where questions. As with other aspects of negotiation, the agenda can be used either manipulatively to enhance leverage or to improve the prospects for agreement and the possibilities for mutual gain. In most cases, it will be used both ways, reflecting the nature of negotiation as a “mixed-motive” situation.

Although it can be instrumental to [research] volunteer as a sole source to write the agenda, in most cases it becomes a joint activity to construct a consensual basis for subsequent negotiation. In these situations, agenda-building becomes one of the pre-negotiation activities that set the tone for the relationship (Saunders, 1985). In other situations, the parties may engage in actual negotiation without a formal or written agenda. When this occurs, the risks and uncertainties may be high but the party who appreciates the importance of the informal agenda has a tremendous advantage.

Whether one plans it or not, during the course of negotiation the parties will discuss a finite set of issues in some sequence and from a particular perceptual framework. Consciousness of the universality and centrality of the agenda is prerequisite to guiding negotiation to a successful conclusion.

The agreement and closing phase is the phase when it is either clear through explicit language, or strongly suggested through non-verbal signals, that TOP is ready to move to agreement. Judging when to close can be difficult and as with phases of the negotiation, experience, observation, practice and reflection will be the best ways to learn here.

In the closing phase, procurement should:

- Watch for closing/buying signals

- Check to ensure all issues have been resolved

- Consider using visual aids to summarise

- Use 'summary close'

- Make a decision to conclude/close

- Seek agreement in principle if TOP does not have the final authority

- Make your own private notes on the final agreement

- Shake hands on the agreement

- Leave the meeting as soon as possible thereafter.

LO 3, AC 3.1

In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.

The opening stage of the negotiation covers the very first few minutes when the parties meet and greet each other and are seated in the negotiation room in preparation for the main event.

Typical behaviours at the opening stage: 'dos' and 'don'ts'

Do’s

Be punctual and well presented (welcome their arrival)

Break the ice with small talks

Start the conditioning process

Check authority

Check agenda

Consider using visual aid to set out key objectives or make key points

Don’ts

Use strong, pushy, cold or tough style at the opening

Put down marker at this stage

Criticise other organisations/TOP's previous contacts/third parties.

In this scenario, Diana has made her proposal right at the opening stage. This is an example of 'don'ts'. Good negotiators are very careful about 'red lines'. If she puts such barrier up too early, the supplier may not try to look for more creative solutions later in the negotiation.

Professor Gavin Kennedy highlights that we need to distinguish negotiation from other forms of decision-making by focusing on what is unique about it (the voluntary exchange) and not shared by other

techniques such as persuasion, gambling (e.g., coin tossing), command decision, instruction, litigation and coercion.

The coercive power comes from the belief that a person can punish others for non-compliance. It can be considered as opposite to reward power, which results from one person's ability to compensate or reward another for compliance.

LO 1, AC 1.3

In order to break vicious cycle of blame, procurement will need to use their negotiation and conflict management skills, adopting a collaborative and integrative approach. Your first action should be to establish the facts that led to the situation where the relationship broke down. Most day-to-day relationship between buying organisations and suppliers do not of course involve procurement staff, so you will need to consult with your business partners internally to establish their point of view of where the issue and sources of conflict are. You should also contact the supplier and get their side of the story - this is particularly to when you have previously identified the supplier as critical or otherwise important to your operations. Ideally you will be able to apply principled negotiation here, separating the people from the issue, focusing on interests and not positions, and then looking for options of mutual benefits.

The objective of the buyer here is to improve supplier cost structures over time, which requires them to have insight into supplier's current cost information. Purchase price cost analysis (PPCA) can help here. PPCA is a method for gathering, analysing and using price and cost information in a systematic way. The process allows the identification of future savings and opportunities to improve current costs.

STEEPLE analysis is used to analyse the macro environment that may have impact on an organisation.

Competitive rivalry is a part of Porter's Five Forces which is a tool for strategy making.

Volume concentration is a way to increase the purchasing quantities in order for a buying organisation to improve its leverage in negotiation.

Different questioning styles can be used to elicit desired responses:

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The mark-up percentage is calculated as the profit divided by the cost of production, then multiplied by 100 to convert it into a percentage.

Calculation:

(

80

/

160

)

×

100

=

50

%

(80/160)×100=50%

Thus, the supplier’s mark-up percentage is 50%, as per standard pricing calculations used in procurement.

Published market indices are a source of macroeconomic data, as they reflect broader economic trends and provide insights into the overall market environment, which is essential for global expansion planning. Macroeconomic analysis focuses on high-level economic indicators, as recommended in CIPS’s guidelines on sourcing macroeconomic data.

Delivering on commitments is fundamental to building high-trust relationships. When an organization reliably fulfills its promises, it reinforces the supplier’s confidence in the partnership, fostering long-term collaboration. While contract management and audits are supportive processes, delivering on commitments directly strengthens trust, as emphasized in CIPS best practices for relationship management.

An adversarial style is appropriate when issues are non-negotiable, such as health and safety commitments (D). In these scenarios, compliance is required without compromise, and a firm stance may be necessary. This aligns with CIPS guidance, where adversarial tactics are used in non-negotiable contexts to enforce strict standards.

Understanding where and with whom your supplier spends their money, or understanding the 'cost breakdowns' or 'price build-up' of the goods and services you purchase from the supplier, will help you know

where and when they can offer price concessions.

Cost information can be expressed with more impact through graphs that can be created using Excel and PowerPoint or other softwares. There are two commonly used models known as 'spend waterfall'

and 'spend tree'. Spend waterfall shows the build-up of costs, while the spend tree shows all the spends that an organisation makes.

There is no graph known as 'spend candlesticks'. Candlestick chart is a style of financial chart used to describe price movements of a security, derivative, or currency.

The aggregate expenditure model is a method of calculating GDP. The aggregate expenditure model focuses on the relationships between production (GDP) and planned spending: GDP = planned

spending = consumption + investment + government purchases + net exports.

There are two major persuasion methods: 'push' and 'pull'.

Persuasion can be defined as encouraging someone to do something that you want them to do for you. Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do. Persuasion can be considered as 'pushing' on TOP so that they can accept the change in attitude or behaviour as a result of your actions.

Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of their reflection and thinking, and not your direct actions.

There are multiple variables to consider when choosing between 'push' and 'pull'. Professor Fiona Dent of Ashridge Business School proposes situations when each style might be most appropriate, breaking down push into 'directive' and 'reasoning' and 'pull' into 'collaborative' and 'visionary':

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Using logical and objective reasons is one of the typical characteristics of persuasion reasoning method.

In the scenario, to exchange cost cutting, the purchasing manager promises to 'reward' supplier shorter payment period. This is an example of reward power, which results from one person's ability to

compensate or reward another for compliance.

The reward does not need to be money, but could be introduction to other buyers in the group, positive references, agreement to trial new product, quicker payment or indeed any other variable that the buyer

knows is attractive and valued by the supplier.

Risk management (3) and the stage in the product life cycle (4) are internal factors within the supplier's control and directly influence pricing decisions. These internal factors guide strategic pricing policies. In contrast, price elasticity of demand and environmental legislation are external factors, as per CIPS’s guidelines on pricing influences.

In a globalised commercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset. Reputational strength in one organisation might be based on some or all of the following characteristics:

- Quality of products or services

- Low cost/high value for money

- High ethical standards

- Reliability

- Cutting-edge technology

- Strong customer focus

- Engineering excellence

LO 1, AC 1.4

Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.

There are many macro economic factors that could influence procurement in general and commercial negotiation in particular. Below are six factors that are agreed to be fairly significant:

• Economy growth rate

• Inflation rates

• Interest rates

• Currency exchange rate

• Unemployment rate

• Protectionism

LO 2, AC 2.2

The Win-Win approach is the most appropriate negotiation strategy in situations where collaboration and ongoing relationships are prioritized. In this case:

Achieving cost savings: The NHS aims to reduce expenses in order to reallocate funds to critical areas, making it essential that both parties work together to find cost-effective solutions.

Collaborative supplier relationship: Since Maria is working with a collaborative supplier, maintaining a positive relationship through mutual benefit is essential for continued cooperation.

Alignment with public service objectives: A Win-Win outcome aligns with the NHS's broader objectives of maximizing resources for patient care, as it ensures that savings are achieved without undermining the supplier’s commitment to quality service.

This approach aligns with CIPS guidelines for maintaining productive, ethical partnerships in procurement, especially in critical sectors like healthcare.

The question asks about the point in time when Jane should make concessions with the supplier. These concessions should be traded after preliminary stages such as opening, testing and proposing are over and proposals move from being tentative and general to being more definite and specific. This stage is called bargaining phase. The bargaining phase is the 'meat' of the negotiation meeting.

LO 3, AC 3.1

In a Win/Win or integrative negotiation approach, the goal is to achieve mutual benefit, which is characterized by a collaborative environment. According to CIPS principles on integrative negotiation:

Collaboration (A): Actively working together enables both parties to find solutions that maximize joint gains and address the needs of both sides.

Problem solving (B): Focusing on problem-solving allows both parties to address the issues at hand rather than competing over positions, facilitating a solution that satisfies both parties' needs.

By emphasizing collaboration and problem-solving, the organization increases the likelihood of a successful, sustainable agreement that respects both parties' interests.

In the scenario, the length of payment period is particularly important to the supplier as they are investing new facilities. Otherwise, the buyer's company has a positive cash flow position and budget is available for a shorter payment terms. So this tradeable (payment period) is important to supplier but it is not a significant problem with the buyer. This tradeable will fall within 'Easy concession to trade' quadrant in the following matrix:

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If the tradeable fall within this quadrant, Sally should shorten the payment period in supplier's favour and try to win as many concessions as possible in return. Asking for a discount may be a reasonable trade-off.

LO 2, AC 2.3

In most commercial negotiations with monopolistic organisations, one can expect that in general they will have far greater bargaining power - you will need them more than they need you. There BATNA is stronger in the short run, but over time their power can be challenged effectively.

Ways of dealing with monopoly suppliers include the following:

Making yourself an attractive buyer

Seeking out alternatives / substitutes in a private or public manner

Designing out the requirement that forces you to go to the monopoly suppliers, or seek to make the product, or threaten to make it yourself if feasible

Lobbying government or campaigning, as part of an industry or trade body, for a reduction in barriers to entry that support the monopoly

A negotiating team can be as few as two people, and one person can play one or more of these roles:

As from the scenario, Jasmine will act as an observer and a scribe (or secretary).

Monopolies exist in many markets in real life for very different reasons:

Ownership of a Key Resource: When one company exerts sole control over a resource that is necessary for the production of a specific product, the market may become a monopoly. For example, the only medication deemed acceptable to treat a disease comes from a particular ingredient X, and knowledge of this ingredient X is owned by a single family owned company. The company can, therefore, be said to have a monopoly over ingredient X that is needed to cure the disease because it is the only company that can produce a product deemed acceptable.

Government Franchise: In certain instances, a monopoly may be explicitly created by the government if it grants a single company, whether private or government-owned, the right to conduct business in a particular market. For example, when a national railways transportation service is created by the government, in most cases they are granted a monopoly on the operation of passenger trains in the country. As a result, other firms are only able to offer passenger train services with the cooperation and/or permission of the government-owned provider.

Intellectual Property Protection: Extending intellectual property protection to a company in the form of patents and copyrights is yet another way in which monopolies are created. When a government does this, it is in fact giving a single company an exclusive right to provide a particular product / service to the market. Patents and copyrights work in providing owners of intellectual property with the right to act as an exclusive provider of a new product for a specific length of time. This creates a temporary monopoly in the market with regards to new products and services.

Natural Monopoly: A market may also become a monopoly simply because it may be more cost-effective for one company to serve the whole market than to have several smaller firms in competition with one another. A company with virtually unlimited economies of scale is referred to as a natural monopoly. Such firms become monopolies due to their position and size, which makes it impossible for new entrants in the market to compete price-wise. Natural monopolies are common in industries with high fixed costs and low marginal costs of operation such as providers of television, telephone, and internet services.

In this question, 'A single firm is very large' is not enough to tell whether this market is monopolistic.

The question requires more detailed answer, it is an example of probing question.

Probing questions are typically follow-up questions, and aim to elicit more detailed information on the back of the answer elicited from the open questions. Probing question are also useful to check that the supplier fully understand their offering, as well as your needs, can also be used to communicate to the suppliers that you know this category well.

LO 3, AC 3.3

Collaborating is both assertive and cooperative. When collaborating, an individual attempts to work with the other person to find a solution that fully satisfies the concerns of both. It involves digging into an issue to identify the underlying concerns of the two individuals and to find an alternative that meets both sets of concerns. Collaborating between two persons might take the form of exploring a disagreement to learn from each other’s insights, resolving some condition that would otherwise have them competing for resources, or confronting and trying to find a creative solution to an interpersonal problem.

There are multiple sources of divergent positions that can arise in situations where money is exchange for goods and services. There are 2 different types of sources. Those that arise from the content or subject matter of the negotiation (what is being negotiated) and those that arise from the process of negotiation (how it is being negotiated).

Sources of divergent positions - the process of negotiation:

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Line of best fits is the line that goes approximately through the middle of the data points with an equal number of data points above and below it. Line of best fits is a method of calculating medium value in statistics.

Standard terms and conditions are basic terms and conditions of business governing transactions that do not have a definitive contract, usually designed to be included in form documents such as orders. While there may be conflicts regarding standard terms and conditions, they are about the content of negotiation, not the process.

Type of purchase: when buying organisation makes an decision to purchase an item, a buyer is faced with three possible scenarios. The item to be bought could be a straight re-buy, a modified re-buy or a new purchase. Decision on type of purchase is purely an internal decision.

Knowing supplier's fixed and variable costs is beneficial for the buyer in a negotiation. With these insights, the buyer would know the volume at which the supplier reaches break-even points and then offers significant discount due to economies of scale.

At the proposing phase either side may start making tentative proposals regarding their offering. In the case of negotiation where TOP has already submitted a tender or proposal, this stage may provide an opportunity for them to make proposals to improve on their initial offers in general or in areas highlighted by the buying side in advance.

The word 'if' is very useful at this stage and allows you to test tentative proposals without committing yourself. Skilled negotiators use language very carefully. The questions with 'if' are hypothetical ones.

LO 3, AC 3.1