Potential Power in a Quasi‐Competitive Market

Through a market‐level examination of shifts in power, this article investigates the impact of potential power and actual power variables on negotiation outcomes viewed in terms of capital ($) in exchange for equity (%). The object of the negotiation is an embryonic firm, and the negotiation task is an exchange of capital invested by the angel investor for equity ownership offered by the entrepreneur. The structure of the interaction is an (n) versus (1) negotiation context with the following generalizable conditions: (1) competition exists among the set of buyers, (2) cooperation is allowed among the set of buyers, and (3) all parties have the ability to walk away. Our hypotheses can be summed up in the age‐old question: Is greater value placed on a bird in the hand, or two in the bush? Analyzing the final negotiated outcomes in relation to a common starting point across 147 market instances, we find that potential power initially has a stronger significant impact than actual power. However, after accounting for the impact of coalitions, actual power variables become highly significant while potential power variables become insignificant.