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    18 -

The defendant would prefer to settle

plaintiffs

by

offering

$3.

However,

if

it

with the low-valuation is rational for the defendant

to later make higher valuation plaintiffs later offer a higher

offers to the high valuation defendants, the low- will correctly anticipate that the defendant will amount to attempt to settle with the high-valuation

plaintiffs. So this subsequent

the low-valuation plaintiffs higher amount that they know

will will

therefore hold out for be rationally offered.

Why settle for $3 when you know that $6 will soon be offered? reason, the defendant and the low-valuation plaintiffs will be reach a settlement at the low valuation ($3).

For this unable to

By using defendant can

a device to offer a avoid this effect.

single price to all plaintiffs, This is a commitment device: an

the action

taken by the defendant to make it subsequently irrational for the defendant to do something that would have otherwise been rational. an MFN, Bayer’s strategy eliminated the possibility of settling at 2 for an amount that would be higher than that in time 1. 27

Like time

An MFN clause has the function of committing the defendant to not

later offering a more generous settlement to other plaintiffs.

If the

defendant were to do so under an MFN clause, the defendant would also

have to compensate the plaintiffs will reason

early-settling plaintiffs.

that

the

defendants

will

not

Therefore, the

offer

a

higher

amount accept 2008).

in the second round and the the defendant’s first round

plaintiffs settlement

will be

more likely to

(Spier,

2003) (Ibáñez,

Here, in the cerivastatin litigation, the announcement of the fixed schedule, no confidentiality agreement, and Bayer’s reputation for

____________

27 Whether or not it makes sense for the defendant to commit itself to a single price in this way hinges upon the distribution of valuations

among plaintiffs, the communication among plaintiffs and the

and risks of trial.

make

sense

for

the

Even under

defendant

to

our simplifying assumptions, commit itself in this way if

expenses it may not there are

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