A Laboratory Comparison of Arbitration Mechanisms: FOA and AFOA

Abstract

Given its lower costs relative to litigation, arbitration is rapidly increasing as a mechanism to settle disputes. While it has traditionally been employed in labor disputes, arbitration has several characteristics that are making it an increasingly attractive option in numerous forms of dispute. First, relative to traditional litigation, arbitration is significantly less costly. However, in addition to the lower expense, arbitration generally places greater restrictions on discovery thereby lessening the competitive information that a business may have to reveal in the resolution of a dispute. Further, these limitations tend to hasten the process further reducing both direct and indirect costs. As mentioned by Fuller [9], Apple Computer saved over $4 million in legal fees by using arbitration in a case with the IRS and simultaneously prevented the revelation of proprietary information which would have occurred in standard litigation. As a result of these characteristics, arbitration has become the dispute resolution of choice for numerous business transactions.