The Unconventional Uses of Transaction Costs

BOILERPLATE: FOUNDATIONS OF MARKET CONTRACT, O. Ben Shahr, ed., 2007

University of Chicago Law & Economics, Olin Working Paper No. 310

23 Pages Posted: 13 Oct 2006

See all articles by David Gilo

David Gilo

Tel Aviv University - Buchmann Faculty of Law

Ariel Porat

Tel Aviv University; University of Chicago - Law School

Abstract

This article discusses the strategic advantages suppliers can derive from the transaction costs they can impose via the terms of their contracts. As the Article demonstrates, such transaction costs could be imposed by the supplier to enable the screening out of unwanted consumers, price discrimination, cartel stabilization, anticompetitive signaling, studying consumer preferences, hiding benefits granted to parties from nonparties, and creating the appearance of a fair contract. The transaction costs could also be self-imposed by the supplier, in order to signal to buyers or to competitors that negotiation of the contract would be very costly. One of the Article's conclusions concerns the legal treatment of standard form contracts. In particular, 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 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: contract, market, contracts, consumers, boilerplate

Suggested Citation

Gilo, David and Porat, Ariel, The Unconventional Uses of Transaction Costs. BOILERPLATE: FOUNDATIONS OF MARKET CONTRACT, O. Ben Shahr, ed., 2007; University of Chicago Law & Economics, Olin Working Paper No. 310. Available at SSRN: https://ssrn.com/abstract=937016

David Gilo

Tel Aviv University - Buchmann Faculty of Law ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
+972-3-6406299 (Phone)

Ariel Porat (Contact Author)

Tel Aviv University ( email )

Ramat Aviv
Tel Aviv 69978, IL
Israel
972-3-6408283 (Phone)
972-3-6407260 (Fax)

HOME PAGE: http://english.tau.ac.il/profile/porata

University of Chicago - Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

HOME PAGE: http://www.law.uchicago.edu/faculty/porat

Register to save articles to
your library

Register

Paper statistics

Downloads
197
Abstract Views
1,294
rank
157,572
PlumX Metrics