Are 'Pay Now, Terms Later' Contracts Worse for Buyers? Evidence from Software License Agreements

Abstract

The rise of commerce over the Internet and telephone has led to widespread use of "pay now, terms later" or "rolling" standard form contracts, in which buyers are not able to read the standard terms until after they have purchased the product. While some scholars and judges argue that rolling contracts do not merit special attention, others, including consumer advocates, are concerned that sellers take advantage of delayed disclosure by hiding especially unfavorable terms. Using a large sample of software license agreements, this paper shows that software publishers who use rolling contracts for their online sales do not, in fact, present more one-sided terms than those who make their licenses available prior to purchase. If anything, it is the contracts that require buyers to explicitly agree to terms before completing an online purchase that have the strongest pro-seller bias. Thus, to the extent there are inefficiencies associated with standard form contracts, they are not made worse by delayed disclosure.