This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

The Use of "Most-Favored-Nation" Clauses in Settlement of Litigation

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Kathryn Spier (Kellogg School of Management)
Abstract

Many settlement agreements in lawsuits involving either multiple plaintiffs or multiple defendants include so-called "most-favored-nation" clauses. If a defendant facing multiple claims, for example, settles with some plaintiffs early and settles with additional plaintiffs later for a greater amount, then the early settlers will receive the more favorable terms as well. These MFN provisions have been prominent in the recent MP3.com case, as well as tobacco litigation, class actions, and many antitrust lawsuits. This paper considers a defendant who is facing a large group of heterogeneous plaintiffs. Each plaintiff has private information about the (expected) award that he or she will receive should the case go to trial. MFN clauses are valuable because they commit the defendant not to raise his offer over time. This has two important effects. First, holding overall settlement rate fixed, MFNs encourage earlier settlement. Second, depending upon the distribution of plaintiff types, MFNs can either increase or decrease the overall settlement rate. Social welfare implications are discussed, and alternative theories, including the strategic use of MFNs to extract value from future plaintiffs, are explored.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1024&context=blewp
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Berkeley Olin Program in Law & Economics in its series Berkeley Olin Program in Law & Economics, Working Paper Series with number 1024.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: 05 Oct 2001
Date of revision:
Handle: RePEc:cdl:oplwec:1024

Note: oai:cdlib1:blewp-1024
Contact details of provider:
Postal: Boalt Hall, Berkeley, CA 94720
Fax: (510) 642-3767
Email:
Web page: http://repositories.cdlib.org/blewp/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Barry Nalebuff, 1987. "Credible Pretrial Negotiation," RAND Journal of Economics, The RAND Corporation, vol. 18(2), pages 198-210, Summer. [Downloadable!] (restricted)
  2. Andrew F. Daughety & Jennifer F. Reinganum, 2002. "Informational Externalities in Settlement Bargaining: Confidentiality and Correlated Culpability," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 587-604, Winter.
  3. Andrew F. Daughety & Jennifer F. Reinganum, 1999. "Hush Money," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 661-678, Winter. [Downloadable!] (restricted)
  4. Monika Schnitzer, 1994. "Dynamic Duopoly with Best-Price Clauses," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 186-196, Spring. [Downloadable!] (restricted)
  5. Kornhauser, Lewis A & Revesz, Richard L, 1994. "Multidefendant Settlements under Joint and Several Liability: The Problem of Insolvency," Journal of Legal Studies, University of Chicago Press, vol. 23(1), pages 517-42, January.
  6. Spier, Kathryn E, 1992. "The Dynamics of Pretrial Negotiation," Review of Economic Studies, Blackwell Publishing, vol. 59(1), pages 93-108, January. [Downloadable!] (restricted)
  7. McAfee, R Preston & Schwartz, Marius, 1994. "Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity," American Economic Review, American Economic Association, vol. 84(1), pages 210-30, March. [Downloadable!] (restricted)
  8. Che, Yeon-Koo, 1996. "Equilibrium formation of class action suits," Journal of Public Economics, Elsevier, vol. 62(3), pages 339-361, November. [Downloadable!] (restricted)
  9. Fiona M. Scott Morton, 1997. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," Yale School of Management Working Papers ysm58, Yale School of Management. [Downloadable!]
  10. Shavell, Steven, 1997. "The Fundamental Divergence between the Private and the Social Motive to Use the Legal System," Journal of Legal Studies, University of Chicago Press, vol. 26(2), pages 575-612, June.
  11. Lucian Arye Bebchuk, 1984. "Litigation and Settlement under Imperfect Information," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 404-415, Autumn. [Downloadable!] (restricted)
  12. Spier, Kathryn E. & Sykes, Alan O., 1998. "Capital structure, priority rules, and the settlement of civil claims," International Review of Law and Economics, Elsevier, vol. 18(2), pages 187-200, June. [Downloadable!] (restricted)
  13. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring. [Downloadable!] (restricted)
  14. Neilson, William S. & Winter, Harold, 1994. "Enhancing bargaining power with most-favored-customer pricing," Economics Letters, Elsevier, vol. 44(1-2), pages 61-66. [Downloadable!] (restricted)
  15. Coase, Ronald H, 1972. "Durability and Monopoly," Journal of Law & Economics, University of Chicago Press, vol. 15(1), pages 143-49, April.
  16. Che, Yeon-Koo & Yi, Jong Goo, 1993. "The Role of Precedents in Repeated Litigation," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 399-424, October.
  17. Crocker, Keith J & Lyon, Thomas P, 1994. "What do Facilitating Practices Facilitate? An Empirical Investigation of Most-Favored-Nation Clauses in Natural Gas Contracts," Journal of Law & Economics, University of Chicago Press, vol. 37(2), pages 297-322, October.
    Other versions:
  18. Stephan, Levy, 2004. "Best-price Guarantees as a Quality Signal," MPRA Paper 13466, University Library of Munich, Germany, revised 02 Nov 2004. [Downloadable!]
  19. Png, I P L, 1991. "Most-Favored-Customer Protection versus Price Discrimination over Time," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1010-28, October. [Downloadable!] (restricted)
  20. DeGraba, Patrick & Postlewaite, Andrew, 1992. "Exclusivity Clauses and Best Price Policies in Input Markets," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 1(3), pages 423-54, Fall.
  21. Besanko, David & Lyon, Thomas P., 1993. "Equilibrium incentives for most-favored customer clauses in an oligopolistic industry," International Journal of Industrial Organization, Elsevier, vol. 11(3), pages 347-367, September. [Downloadable!] (restricted)
  22. Thomas E. Cooper, 1986. "Most-Favored-Customer Pricing and Tacit Collusion," RAND Journal of Economics, The RAND Corporation, vol. 17(3), pages 377-388, Autumn. [Downloadable!] (restricted)
  23. Perotti, Enrico C & Spier, Kathryn E, 1993. "Capital Structure as a Bargaining Tool: The Role of Leverage in Contract Renegotiation," American Economic Review, American Economic Association, vol. 83(5), pages 1131-41, December. [Downloadable!] (restricted)
    Other versions:
  24. Fiona Scott Morton, 1997. "The Strategic Response by Pharmaceutical Firms to the Medicaid Most-Favored-Customer Rules," RAND Journal of Economics, The RAND Corporation, vol. 28(2), pages 269-290, Summer. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? IDEAS also indexes book chapters.

This page was last updated on 2009-12-9.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.