The Return of Bargain: An Economic Theory of How Standard-Form Contracts Enable Cooperative Negotiation between Businesses and Consumers

Authors

Jason Scott Johnston, University of Pennsylvania Law SchoolFollow

Abstract

Among attorneys, judges, and legal academics, there is virtual consensus that the widespread use by business firms of standard-form contracts in their dealings with consumers has completely eliminated bargaining in consumer contracts. I believe that this perception is false, that rather than precluding bargaining and negotiation, standard-form contracts in fact facilitate bargaining and are a crucial instrument in the establishment and maintenance of cooperative relationships between firms and their customers. On this view, which I elaborate below, firms use clear and unconditional standard form contract terms not because they will insist upon those terms, but because they have given their managerial employees the discretion to grant exceptions from the standard-form terms on a case-by-case basis. In practice, acting through its agents, a firm will often provide benefits to consumers who complain beyond those that its standard form obligates it to provide, and it will forgive consumer breach of standard-form terms. Firms do this because they have an interest in building and maintaining cooperative, value-enhancing relationships with their customers. Were firms legally required to extend such benefits or forgiveness-as would result either from judicial invalidation of the tough standard-form performance terms or legislatively mandated generous standard-form performance terms-then both firms and their customers would be worse off.

Recommended Citation

Jason S. Johnston, The Return of Bargain: An Economic Theory of How Standard-Form Contracts Enable Cooperative Negotiation between Businesses and Consumers, 104 Mich. L. Rev. 857 (2006).
Available at: https://repository.law.umich.edu/mlr/vol104/iss5/3