Empty Promises

Southern California Law Review, Vol. 84, p. 1, 2010

NYU Law and Economics Research Paper No. 10-08

47 Pages Posted: 19 Feb 2010 Last revised: 22 Oct 2010

See all articles by Oren Bar-Gill

Oren Bar-Gill

Harvard Law School

Kevin E. Davis

New York University School of Law

Date Written: February 18, 2010

Abstract

Consumer contracts are pervasive. Yet, the promises that make up these contracts are becoming increasingly empty, as sellers reserve the power to unilaterally modify their contracts. While some modifications benefit both sellers and consumers, others increase seller profits at the consumer’s expense. The law’s goal should be to facilitate good modifications, while preventing the bad ones. Currently this goal is not met. The problem is twofold. First, consumers fail to appreciate the risk of unilateral modification and thus fail to demand a commitment, by sellers, to avoid inefficient modifications. Second, and more important, even if consumers demanded a commitment to make only mutually-beneficial modifications, existing commitment mechanisms – consumer assent to modifications, judicial review of modifications and seller reputation – are inadequate. We propose a novel commitment mechanism: Change Approval Boards (or CABs) will be added as parties to consumer contracts. These CABs will selectively assent to, or withhold assent from, contractual changes that sellers wish to make, according to the CAB’s modification policy. We envision a market for CABs – multiple CABs, each striking a different balance between flexibility and security, offering a range of modification policies from which consumers can choose. The market-based CAB system promises to deter abusive term changes while retaining the flexibility to change consumer contracts when change is justified.

Suggested Citation

Bar-Gill, Oren and Davis, Kevin E., Empty Promises (February 18, 2010). Southern California Law Review, Vol. 84, p. 1, 2010; NYU Law and Economics Research Paper No. 10-08. Available at SSRN: https://ssrn.com/abstract=1554966

Oren Bar-Gill (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

Kevin E. Davis

New York University School of Law ( email )

40 Washington Square South
Vanderbilt Hall, Room 335
New York, NY 10012-1099
United States
212-992-8843 (Phone)

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