Exploiting plaintiffs through settlement

"This paper considers settlement negotiations between a singledefendant and N plaintffs when there are fixed costs of litigation. Whenmaking simultaneous take-it-or-leave-it offers to the plaintiffs, the defendantadopts a divide and conquer strategy. Plaintffs settle their claims for lessthan they are jointly worth. The problem is worse when N is larger, theoffers are sequential, and the plaintiffs make offers instead. Although divideand conquer strategies dilute the defendant's incentives, they increase thesettlement rate and reduce litigation spending. Plaintiffs can raise theirjoint payoff through transfer payments, voting rules, and covenants not toaccept discriminatory offers"--John M. Olin Center for Law, Economics, and Business web site.