Abstract: This paper considers settlement negotiations between a single
defendant and N plaintffs when there are fixed costs of litigation. When
making simultaneous take-it-or-leave-it offers to the plaintiffs, the defendant
adopts a divide and conquer strategy. Plaintffs settle their claims for less
than they are jointly worth. The problem is worse when N is larger, the
offers are sequential, and the plaintiffs make offers instead. Although divide
and conquer strategies dilute the defendant’s incentives, they increase the
settlement rate and reduce litigation spending. Plaintiffs can raise their
joint payoff through transfer payments, voting rules, and covenants not to
accept discriminatory offers.