Private antitrust litigation often involves a dominant firm being accused of exclusionary conduct by a smaller rival or entrant. Importantly, the firms in such cases generally have asymmetric stakes: the defendant typically has a much larger financial interest on the line. We explore the broad policy implications of this fact using a novel model of litigation with endogenous effort. Asymmetric stakes lead dominant defendants to invest systematically more resources into litigation, causing the plaintiff’s success probability to fall below the efficient level—a distortion that carries over to ex ante settlements. We explain that enhanced damages may reduce the problem, but cannot eliminate it. We also show that, in most areas of private law, asymmetric stakes do not distort litigation outcomes in this way; the distortion arises in antitrust only because it proscribes certain ex post settlements, and this constraint influences incentives at the litigation stage. Finally, we consider how courts could correct the distortion created by asymmetric stakes by altering plaintiffs’ evidentiary burden.
Antitrust and Trade Regulation | Law | Law and Economics | Law and Society
Date of this Version
Erik Hovenkamp and Steven C. Salop, "Asymmetric Stakes in Antitrust Litigation" (June 2020). University of Southern California Legal Studies Working Paper Series. Working Paper 322.