Most articles about negotiation or settlement treat conflict not just as something to be avoided, but as a complete breakdown in the negotiation process. Either conflict represents a massive miscalculation (as law-and-economics scholars have said about litigation, and international security scholars say about war), or it represents a best alternative to negotiation for one party.

But there is another option, one that Professor Robert Powell recognized back in 2004. As he discussed in his article "Bargaining and Learning While Fighting," conflict (for his area of study war, for ours litigation) can operate as an information-gathering device.

How does this differ from the standard economic model of bargaining? In the standard model, you have a buyer and a seller, and some private information (the true value of the object to the buyer). The buyer has an incentive to hide the true value, and the only real indication of the true value of the object is the buyer’s willingness to keep negotiating or walk away.

In conflict, however, there’s another source of private information (the distribution of power), and another way of learning about it (the fighting). Fighting will reveal some information that’s not as prone to strategic manipulation. For example, actual litigation will reveal one’s resolve to litigate, as well as provide some idea of the resources one has at his disposal.

The model Powell proposes is the following. There is a satisfied party (let’s call them the defendant for our purposes) and a dissatisfied party (the plaintiff). The dissatisfied party registers a complaint or a threat, and the satisfied party makes an offer. The more the defendant concedes, the more likely there will be a settlement without a fight, but the worse the terms for the defendant. If the plaintiff rejects the offer, then there is conflict. But the bargaining doesn’t have to end there. Instead, at the end of each round of conflict (here, those might be when motions are decided or discovery is released), each side knows a little more about the other side’s capabilities, and about the likely outcome of the conflict.

Thus, the bargaining continues until the states reach agreement or until one of the states runs out of resources.

Powell goes on to explain that while, in the standard model of negotiation, there’s really only one source of uncertainty (the price of the object), in negotiation that leads to conflict, there are two. One is the price (which he refers to as costs or resolve). But there’s also uncertainty over the distribution of power, which will dictate who wins the conflict. (For lawyers, this can be any number of things: the state of the law, the relative talent for each firm, the resources available to each firm, even the rhetorical advantage for each position.) And, as Powell points out, this difference in types of uncertainty

suggests that crises arising out of uncertainty over costs or resolve are likely to be settled more quickly and short of large scale fighting than are crises arising out of uncertainty over the distribution of power.

Powell’s conclusion requires one tweak when discussing litigation. Class-action lawyers, unlike generals, face an ethical duty to represent their clients. As a result, once a class-action lawyer files a lawsuit, he often faces additional pressure to keep the conflict going unless he can settle on terms favorable to the class. (There’s likely political pressure to do this in war, but not the same worry about one’s professional license.)

So, how can defendants use Powell’s work to their advantage? Powell’s article confirms one important feature of litigation that I have been discussion for some time: every action taken in litigation leaks information. And bargaining, even hostile bargaining between two parties locked in conflict, is primarily an exchange of information. So for litigators who continue to keep negotiation open as a strategy, it is important to watch how their opponents are actually fighting the case: doing so can provide vital information about what kinds of offers they might entertain, and which ones they are certain to reject.