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Abusive contract terms: Is unenforceability a deterrent sanction?

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Listed:
  • Sophie Bienenstock

    (Centre d’Economie de la Sorbonne – Université Paris I Panthéon Sorbonne)

  • Claudine Desrieux

    (Université Paris II Panthéon Assas)

Abstract

We investigate the impact of sanctions in the presence of abusive contract terms in a litigation model under asymmetric information on consumers’ ability to litigate. A firm may decide to write an abusive clause to extract part of a consumer’s surplus. Facing such a clause, consumers can seek compensation at a cost, but only a fraction of them are ready to go to court to obtain this compensation. If the case is brought to court, the abusive clause is unenforceable. We then explore the consequences of introducing an additional sanction to this unenforceability. Our results show that the mere non-enforcement of abusive clauses has no deterrent effect. However, the introduction of an additional sanction has to be done carefully because under certain conditions, it leads to more deterrence but may also worsen the utilities of some consumers and generate mixed effects on welfare.

Suggested Citation

  • Sophie Bienenstock & Claudine Desrieux, 2022. "Abusive contract terms: Is unenforceability a deterrent sanction?," European Journal of Law and Economics, Springer, vol. 54(2), pages 187-216, October.
    • Handle: RePEc:kap:ejlwec:v:54:y:2022:i:2:d:10.1007_s10657-022-09731-y
    DOI: 10.1007/s10657-022-09731-y
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    References listed on IDEAS

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    1. Yannis Bakos & Florencia Marotta-Wurgler & David R. Trossen, 2014. "Does Anyone Read the Fine Print? Consumer Attention to Standard-Form Contracts," The Journal of Legal Studies, University of Chicago Press, vol. 43(1), pages 1-35.
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    More about this item

    Keywords

    Abusive contract terms; Asymmetric information; Economic analysis of litigation; Consumer contracts;
    All these keywords.

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • K15 - Law and Economics - - Basic Areas of Law - - - Civil Law; Common Law
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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