One-Sided Contracts in Competitive Consumer Markets

13 Pages Posted: 10 Nov 2005 Last revised: 29 Apr 2009

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Richard A. Posner

University of Chicago Law School; National Bureau of Economic Research (NBER)

Abstract

This paper shows that "one-sided" terms in standard contracts, which deny consumers a contractual benefit that seems efficient on average, may arise in competitive markets without informational problems (other than those of courts). A one-sided term might be an efficient response to situations in which courts cannot perfectly observe all the contingencies needed for an accurate implementation of a "balanced" contractual term when firms are more concerned about their reputation, and thus less inclined to behave opportunistically, than consumers are. We develop this explanation, discuss its positive and normative implications, and compare them to those of information-based explanations for one-sided terms.

Keywords: contracts, standard form contracts, contracts of adhesion, reputation, opportunism, observability

JEL Classification: D8, K12

Suggested Citation

Bebchuk, Lucian A. and Posner, Richard A., One-Sided Contracts in Competitive Consumer Markets. Michigan Law Review, Vol. 104, pp. 827-836, 2006, Available at SSRN: https://ssrn.com/abstract=845108

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

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Richard A. Posner

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