An Offer You Cannot Negotiate: Some Thoughts on the Economics of Standard Form Consumer Contracts
Aristides N. Hatzis
University of Athens - Department of Philosophy & History of Science; University of Athens - Faculty of Law; Athens University of Economics and Business - Department of Economics
STANDARD CONTRACT TERMS IN EUROPE: A BASIS FOR AND A CHALLENGE TO EUROPEAN CONTRACT LAW, Hugh Collins, ed., Wolters Kluwer Law & Business, Private Law in European Context Series, Vol. 15, pp. 43-56, 2008
With Directive 93/13/EEC (April 5, 1993), the Council of the European Communities attempted to regulate the terms in standard form consumer contracts concluded in the (then) European Economic Community. The goals of the EC Council were to "ensure that contracts concluded with consumers do not contain unfair terms" and to protect consumers "against the abuse of power by the seller or supplier, in particular against one-sided standard contracts and the unfair exclusion of essential rights in contracts." At the same time, the EC Council expressed the hope that the uniformity of consumer law would stimulate competition "so contributing to increased choice for Community citizens as consumers." In this paper we contribute to the discussion of unfairness in standard form contracts, with the help of economic analysis of law. Since such contracts are by definition not negotiated, economic analysis can help differentiate between efficient and inefficient contract terms. Efficient terms are the ones that the parties would have added if they had negotiated. Inefficient, and thus abusive, are the terms that the parties wouldn't have included in the contract if they had the chance to negotiate. Economics can offer the theoretical framework for making such a distinction, provided that "unfair" is constructed as inefficient. Otherwise, i.e., if terms that the parties would have added to the contract after a negotiation are deemed unfair based on an external fairness criterion and not the welfare of the parties, the results will be distorting for competition and damaging for consumers.
Number of Pages in PDF File: 18
Keywords: standard form contracts, consumer contracts, unfair terms, unconscionability, European Union directive on unfair terms in consumer contracts, economic analysis of contract law
JEL Classification: K12Accepted Paper Series
Date posted: May 1, 2006 ; Last revised: September 9, 2009
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