Bayer’s Announcement Offer Acted as a Commitment Device
The combination of the existence of a schedule and the lack of
confidentiality agreement helped Bayer reduce it to credibly commit to a single strategy of
total payouts by allowing
it acted Bayer to As Spier
like a paying (2003)
most-favored nation agreement.
It effectively committed
price for any
injury to all plaintiffs. often in a defendant’s
interest to commit to commitment mechanism,
a particular settlement amount.
But absent some
early offer will delay, correctly anticipating that it will be rational for the defendant to make a higher second offer rather than risk trial. A simple extended form game theory diagram, as shown in Figure 1, can
26 This simple model assumes that the defendant and the plaintiff possess complete information about the relevant payouts except for the
payoffs of trial. possesses perfect plaintiffs.
The model does not assume that the defendant information about the distribution of the type