Arbitration is a dispute resolution process in which the disputing parties present their case to a third party intermediary (or a panel of arbitrators) who examine all the evidence and then make a decision for the parties. This decision is usually binding. Like court-based adjudication, arbitration is adversarial. Arbitration is generally not as formal as court adjudication, however, and the rules can be altered to some extent to meet the parties' needs. As in court-based adjudication, arbitration outcomes are typically win-lose, not win-win. Thus, the arbitrator usually decides that one side was right and the other wrong.
In the United States, arbitration is most commonly used in labor-management, commercial, and consumer conflicts. There are several advantages of arbitration. First, it is more flexible than adjudication. The disputants can usually choose their own arbitrator, who can be an expert in the topic in dispute, which a judge seldom is. This makes arbitration especially useful in complex, technical commercial disputes. Second, arbitration is usually much quicker than litigation, especially since the result is binding and not open to appeal as litigation is. Third, arbitration is private. This avoids the disclosure of trade secrets and potentially embarrassing information.
While mediation also provides some of these advantages, it is a cooperative process, not an adversarial one. If the parties are so angry with each other that they cannot communicate effectively, even with help, or cannot cooperate at all, arbitration is usually more effective than mediation. It is also more effective when the problem involves the determination of facts or interpretation of law.
The disadvantages of arbitration stem from the same characteristics. Arbitration is adversarial, thus it generally does nothing to create win-win solutions or improve relationships. Often it escalates a conflict, just as court-based adjudication is likely to do. In addition, arbitration takes decision making power away from the parties. This results in a resolution of the current conflict, but does nothing to help the parties learn how to resolve their own conflicts more effectively in the future, as does mediation.