Lawyers' contingent fee (CF) rates are rather uniform, often one-third of the recovery. Arguably, this uniformity is a type of anti-competitive pricefixing, which results in clients paying supra-competitive fees. This paper challenges this argument. It shows that uniform CF rates provide clients with an important advantage, as such rates enable them to make a de facto "take-it-orleave-it" offer. Consequently, lawyers cannot exploit their private information, and clients retain the transaction's entire surplus and may hire the best lawyer among those who find it profitable to handle the case. The paper also addresses the effect of uniformity of CF rates when lawyers refer cases to other lawyers. It shows that uniformity facilitates matching of clients and lawyers through the referral system. It also demonstrates that the fact that both direct clients and those obtained through paid-for referrals pay the same CF rate does not attest to cross-subsidization. The clients whose cases are transferred for a referral fee (paid by the handling lawyer) "pay" for the referral service by obtaining a less highly ranked lawyer.
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Acknowledgments: We would like to thank Nora Engstrom, Nuno Garoupa, Yehonatan Givati, Saul Levmore, Ariel Porat, Eric Posner, two anonymous reviewers and participants in workshops at UC Berkeley and the Hebrew University of Jerusalem for their valuable comments on earlier drafts, and Meirav Furth for her excellent research assistance. Finally, we are grateful for the financial support provided by the Milton and Miriam Handler Foundation and the Aharon Barak Center for Interdisciplinary Legal Research at the Hebrew University of Jerusalem.
- Contingent fee
- Uniform prices