Towards a Firm-Based Theory of Consumption

23 Pages Posted: 27 Sep 2011

See all articles by David G. Yosifon

David G. Yosifon

Santa Clara University - School of Law

Date Written: September 26, 2011

Abstract

Corporate theory typically construes consumption activity as involving a series of arms-length, atomistic transactions in which consumers exchange money for discrete corporate goods or services. Canonical accounts expect satisfied consumers to engage in repeat transactions, but the transactions themselves are (implicitly or explicitly) assumed to be isolated, fully contained dealings with the firm. Such a view of consumption supports the inference that consumers can readily manage their own interests in corporate operations through serial decisions to “take it,” “leave it,” repeat, or refuse to repeat patronization of a firm. This assessment plays an important part in justifying American corporate governance law, which charges corporate directors with fiduciary obligations only to shareholders, not consumers or other stakeholders. In this Article, I begin to explore some ways in which consumer associations with the corporate “nexus of contracts” are more relational and indeterminate, and less atomistic, than mainstream corporate theory typically presumes. I draw on and extend Ronald Coase’s transactional theory of the firm by exploring ways in which some important consumption decisions are made “in-house” by firm managers rather than “in the market” by individual consumers. This positive theory of “firm-based consumption” poses a challenge to the view that corporate governance law should require directors to manage firms exclusively on behalf of shareholders.

Keywords: corporate law, corporations,corporate governance, consumption, consumer theory, corporate social responsibility

Suggested Citation

Yosifon, David G., Towards a Firm-Based Theory of Consumption (September 26, 2011). Wake Forest Law Review, Vol. 46, No. 447, 2011; Santa Clara Univ. Legal Studies Research Paper No. 20-11. Available at SSRN: https://ssrn.com/abstract=1933844

David G. Yosifon (Contact Author)

Santa Clara University - School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

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