Reservation price
Factual definition
A reservation price is the walk-away number each side holds privately. Negotiation is the search for overlap between two reservation prices.
Also called: Walk-away price.
Identify a potential bargaining range on comparable terms
Hypothetical: a seller’s minimum is US$40 million and a buyer’s maximum is US$48 million for the same stake, price basis, and payment terms. The US$8 million overlap creates a potential bargaining range from US$40 million to US$48 million.
It does not guarantee agreement.
| Seller’s minimum | Lower price |
|---|---|
| Buyer’s maximum | Higher price |
A better alternative can move the bargaining range
Suppose the seller in the example receives a credible alternative offer of US$46 million on identical terms. If the seller’s minimum rises to that amount, the potential range narrows from US$40–48 million to US$46–48 million.
The buyer’s US$48 million ceiling need not change just because a competing offer arrives. Raising it requires a change in the buyer’s own valuation, financing, alternatives or willingness to accept risk.
A target price is what a negotiator hopes to achieve; a reservation price is the boundary beyond which the deal is worse than the relevant alternative. An opening offer can be different from both.
Compare the same economics before deciding whether the boundaries overlap. US$48 million paid immediately and US$48 million paid over five uncertain years are not equivalent simply because the headline numbers match.
Write the walk-away rationale before the negotiation becomes a contest to win. That makes it possible to distinguish new information from reluctance to lose the deal.
Where Reservation price fits
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