Updated April 2013
Integrative or "interest-based" bargaining is a form of negotiation in which each party attempts to understand the other's interests, on the expectation that it will achieve a better result by helping the opponent create a solution it sees as responsive to its own concerns.
This technique is important to anyone who is involved in a negotiation. Unless at least one party knows how to enlist the other in a mutual discovery of interests, negotiating behavior will typically result in a mutually defeating "zero sum" or "distributive" round of bargaining.
Integrative bargaining (sometimes called "win-win") depends on understanding that parties often fail to reach agreement when agreement would have been in both parties' interests, or reach an agreement which could have been better for both parties. In integrative bargaining, each party works at understanding what the other really needs out of the negotiation. This, in turn, depends on being able to question the other party about their interests, or otherwise discover what they really are (i.e. it is possible for one party to lead into this process even if the other party initially is not cooperative). In integrative bargaining, parties will tend to avoid taking arbitrary "positions," while still being assertive about their needs. This approach is clearly distinguishable from "distributive" or "positional" bargaining, in which the usual sequence is for one party to start unrealistically "high" and the other to start low, with successive offers narrowing the difference — without either party really understanding what the other seeks to achieve.
There is a tension between the two approaches: Many negotiators believe that keeping as much as possible of their own side's information secret from the other party strengthens their ability to obtain a favorable deal. In distributive bargaining, this is probably true. But in order for integrative bargaining to work, information must be shared. This can often produce a better result than the same negotiator could have achieved using distributive methods. The "catch" is that there is reason to believe that when one party aggressively uses positional methods while the other seeks an integrative solution, the aggressive positional party will get more.
One consequence is that many negotiators practice an elaborate form of "tit for tat," in which the initial object is to find out whether the opponent is willing to play by integrative principles. If the opponent won't play by these rules, the negotiator may feel safer reverting to a distributive approach.
The classic example involves two teenagers and an orange. If there's only one orange in the refrigerator and both teenagers demand it simultaneously, a distributive bargain might well involve each of them getting half of it. In an integrative approach, each might ask the other why he or she wanted the orange, discovering in the process that one wanted to eat the inside while the other wanted the peel to bake a cake. The integrative bargain is obviously better for both.
Everyone involved in a negotiation needs to make an early assessment of whether, if an integrative approach is used, the other party is likely to use the same approach in return. If so, everyone is likely to do better by using integrative bargaining. But if the opposing party will use any information offered merely to buttress its own position, and will not explain its interests in return, it may be safer to use distributive bargaining oneself.
Because of several psychological biases, most people will ascribe worse motives to their negotiating opponents than they in fact hold. To avoid a self-fulfilling mutual suspicion, a negotiator can experiment by making a small immediate disclosure of some information about his or her interests, and explicitly invite the other party to reciprocate, with the comment that he or she believes that both will do better if they are both willing to share the necessary information and respond to each other's interests. This may be enough to create interest and lessen suspicion, without risking much.