Law Commons^™

Frictions And The Persistence Of Inferior Contract Terms, Royce De R. Barondes

Faculty Publications

A rudimentary conceptualization of the development of ancillary contract terms would assert competition will result in terms that are joint-wealth-maximizing for merchants and customers. Building on developments in modeling frictions in markets, this article presents simple models of frictions in multi-period contracting as to ancillary contract terms. The modeling illustrates that, for plausible parameter estimates of frictions, combinations of switching costs and investigation costs may allow collectively inferior contract terms to persist in consumer transactions. The results are in harmony with recent evidence illustrating the infrequency with which consumers actually read contract terms. The modeling identifies circumstances where this opportunistic …