Bargaining Tipping Point
In certain litigation settlement bargaining situations, a litigant’s optimal offer or demand can become hypersensitive to small variations in one or more economic dimensions of the case. We call this a “bargaining tipping point”.
This situation can occur when a litigant becomes economically indifferent between settlement and trial. A number of factors can contribute to this condition:
- when sunk costs become excessive
- when a plaintiff’s cost structure is fully contingent
- when the defendant’s cost of capital exceeds that of the plaintiff
Or with some combination of these factors a litigant, may see no great advantage to settlement. In this circumstance, small changes to certain economic factors or assumptions can dramatically alter a litigant’s optimal bargaining strategy and make the difference between a probable settlement and a certain impasse.
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