Default Difficulties: The Case for Regulatory Intervention in Merchants' Reliance on Default Rules that Harm Consumers

38 Pages Posted: 22 Apr 2024

See all articles by Kate Reinmuth

Kate Reinmuth

Stanford University, Department of Economics; Stanford Law School

Date Written: March 20, 2024

Abstract

This Note investigates how incomplete contracting between merchant parties may harm third-party consumers. After defining this phenomenon and noting several examples, this Note considers solutions to the social inefficiencies arising from these merchant-to-merchant contracts. To do so, this Note engages in a detailed case study of generic drug shortages and how incomplete failure-to-supply provisions affect patients’ ability to access essential drugs. Such shortages typify the incomplete contracts at issue in this Note. Ultimately, this Note proposes a regulatory solution to firms’ reliance on default rules that would reduce the incidence of extreme negative externalities on third parties.

Keywords: Default rules, merchants, contracts, externalities, shortages

JEL Classification: K12, K23, L65

Suggested Citation

Reinmuth, Kate, Default Difficulties: The Case for Regulatory Intervention in Merchants' Reliance on Default Rules that Harm Consumers (March 20, 2024). 77 STAN. L. REV ___ (forthcoming 2025), Available at SSRN: https://ssrn.com/abstract=4799422

Kate Reinmuth (Contact Author)

Stanford University, Department of Economics

Stanford, CA 94305
United States

Stanford Law School

Stanford, CA 94305
United States

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