Document Type
Article
Publication Date
2005
Abstract
Standard form contracts, or contracts of adhesion, appear to provide contradictory evidence for the operation of bargaining in the markets where they are common. Non-negotiated contract terms that seemingly benefit sellers to the detriment of buyers call into question the efficiency implications of the Coase Theorem, which forms the foundation of positive law and economics. Proponents of the behavioral school of law and economics have suggested that behavioral biases, observed in experimental contexts, provide the most plausible explanation for standard form contracts. However, price discrimination might provide a more parsimonious explanation for abusive terms in contracts. If there is heterogeneity in the value consumers place on time, individuals will have differing propensities to bargain over individual terms, allowing sellers to extract greater surplus from high time value people through standard form contracts, while allowing low time value people to change individual contract terms. One of the major virtues of this explanation (and of standard economic theory in general) is that it generates testable hypotheses about cross-sectional variation. Specifically, the likelihood of a seller offering a standard form contract should increase: 1) as consumer heterogeneity increases; and 2) as arbitrage becomes increasingly costly.
Keywords
Consumer Protection Law, Contracts, Economics
Publication Title
Florida State University Law Review
Repository Citation
Klick, Jonathan, "The Microfoundations of Standard Form Contracts: Price Discrimination vs. Behavioral Bias" (2005). All Faculty Scholarship. 1132.
https://scholarship.law.upenn.edu/faculty_scholarship/1132
Included in
Behavioral Economics Commons, Biological Psychology Commons, Consumer Protection Law Commons, Contracts Commons, Law and Economics Commons
Publication Citation
32 Fla. St. U. L. Rev. 555 (2005).