Let’s Work it Out (or We’ll See You in Court…) - Litigation and Private Dispute Resolution in Vertical Exchange Relationships

Organization Science, 2012, May/June 23: 820-834

36 Pages Posted: 23 Apr 2011 Last revised: 4 Feb 2016

See all articles by Fabrice Lumineau

Fabrice Lumineau

University of Hong Kong

Joanne E. Oxley

University of Toronto - Joseph L. Rotman School of Management

Date Written: April 1, 2011

Abstract

We examine how partners in vertical exchange relationships actually resolve disputes that are sufficiently serious to get lawyers involved. Reaching beyond the usual domain of organizational and management research we leverage findings from law and economics to offer a novel organizational perspective on litigation and private dispute resolution, and develop hypotheses about the likelihood of litigation in different exchange settings. Our empirical analysis generates three sets of new findings: First, counter to the received wisdom we see that the involvement of lawyers does not necessarily signal the bitter end of an exchange relationship, as firms frequently manage to avoid litigation and resolve their disputes privately, and do so in a manner that accords with our theoretical predictions. Second, we see that familiarity with exchange partners does not automatically lead to increased willingness to work things out: rather, our empirical results suggest that the impact of exchange duration on parties’ willingness to resolve disputes privately is contingent on the development of norms of cooperation; in the event that such norms do not develop, the probability of a litigated outcome actually increases over time. Finally, we see that firms’ willingness to work things out privately is also influenced positively by the shadow of the future. These findings are suggestive of a “discriminating alignment” between exchange characteristics and the choice of dispute resolution procedure, and thus inject important new evidence into ongoing discussions about the legal underpinnings of different governance forms.

Keywords: Contracts, Dispute Resolution, Litigation

JEL Classification: D23, K41, L14

Suggested Citation

Lumineau, Fabrice and Oxley, Joanne E., Let’s Work it Out (or We’ll See You in Court…) - Litigation and Private Dispute Resolution in Vertical Exchange Relationships (April 1, 2011). Organization Science, 2012, May/June 23: 820-834, Available at SSRN: https://ssrn.com/abstract=1816402

Fabrice Lumineau

University of Hong Kong ( email )

HKU Business School
Hong Kong
Hong Kong

Joanne E. Oxley (Contact Author)

University of Toronto - Joseph L. Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-0305 (Phone)

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