Most private antitrust suits are settled. In class we analyzed the suit as an as

Question

Most private antitrust suits are settled. In class we analyzed the suit as an asset to the plaintiff and a liability to the defendant. If the defendant values the liability more than the plaintiff values the asset, the defendant will in effect buy it. This is how a settlement occurs.

A) Suppose that the defendant, in addition to the other losses from losing the antitrust suit, stands to lose some monetary lump sum (Y) because of damage to the reputation of his or her business (regardless of the outcome of the case). In the case where both parties have the same assessments (Probability of D= Probability of P), is a settlement guaranteed to happen? Will this make a settlement more or less likely? By how much?

B) Suppose starting from the original model that instead of always paying his or her own litigation costs, the defendant only pays these costs when the case is lost. In the case where both parties have the same assesmenets (Pd=Pp), is a settlement guaranteed to happen? If so, is it more or less likely? By how much?

C) Now consider a case where the parties involved have different subjective beliefs about the likelihood of the plaintiff winning the case. If Pd=0.5, Pp=0.7, Cp=50 and Cd=60, what level do the damages have to be in order for this case to NOT be settled?

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