The Hidden Roles of Boilerplate and Standard Form Contracts: Strategic Imposition of Transaction Costs, Segmentation of Consumers and Anticompetitive Effects
50 Pages Posted: 12 Sep 2005 Last revised: 4 Jun 2014
Previous literature on boilerplate provisions focused on the asymmetric information between the supplier and consumers created by boilerplate language that includes harsh terms, which is aimed at extracting surplus from consumers without them being aware of it. This article focuses on other benefits the supplier can derive from the transaction costs that boilerplate language or other contractual terms create, most of which have been ignored by courts and legal writers. As the Article demonstrates, such transaction costs could have different impacts on different types of consumers, enabling, inter alia, screening out unwanted consumers, price discrimination, cartel stabilization and the studying of consumer preferences. On other occasions, the transaction costs are imposed in order to hide benefits granted to certain consumers. On yet other occasions the transaction costs are self-imposed by the supplier, in order to signal to buyers or to his competitors that negotiation of the contract would be very costly. There are also cases in which the transaction costs do create asymmetry of information between the supplier and his consumers, as in the classic discussions of boilerplate language, but the asymmetry is used as a cartel-facilitating tool, an anticompetitive signaling device, or a tool for creating the appearance of a fair contract, rather than to merely extract surplus from uninformed consumers.
One of this Article's conclusions is that the law's concern should not be only with harsh boilerplate terms, but also with beneficial boilerplate terms. At times, beneficial boilerplate terms extract surplus from uninformed consumers, exactly as harsh terms do, but by using a different technique. Another conclusion of the Article is that boilerplate language should be carefully reviewed even when no particular terms are hidden in it, neither beneficial nor harsh, because the boilerplate provisions could be used just for the sake of artificially complicating the transaction. The Article also points out that while it is conventionally thought that standard form contracts save transaction costs, in fact the supplier often may want to artificially impose transaction costs upon consumers for strategic reasons.
The Article also inquires whether the use of beneficial boilerplate terms is desirable from a social perspective, and if not, it asks how the law should discourage it.
Keywords: standard form contracts, boilerplate, fine print, transaction costs, segmentation, consumers, cartels, competition, asymmetric information, ethnic discrimination, price discrimination, quantity discounts, tacit collusion, consumer segmentation
JEL Classification: D11, D43, D61, K12, K21, L41, L42, J71
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