Competition and the Quality of Standard Form Contracts: An Empirical Analysis of Software License Agreements

Abstract:     
Most commercial transactions are governed by standard form contracts. But despite the ubiquity of standard forms, there has been little empirical study of their content and determinants. This paper provides a comprehensive analysis of 647 software license agreements, paying special attention to the role of competitive forces in shaping standard terms. Friedrich Kessler argued that companies in concentrated industries, or companies with dominant market share, take advantage of their position by imposing one-sided standard terms that limit their obligations to consumers; other scholars have argued that market structure is irrelevant to the standard terms offered to buyers. The results support the latter view. While software products' prices are highly sensitive to competitive conditions such as concentration and market share, license agreement terms are not. By demonstrating that sellers with market power do not offer unusually harsh terms, the results suggest that an important aspect of the standard analysis of procedural unconscionability is misguided. More broadly, the analysis provides a wealth of descriptive detail about an important class of modern standard form contracts.

Working Paper Series