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Opportunistic Termination

Author

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  • Alexander Stremitzer

Abstract

If a seller delivers a good nonconforming to contract, European and US warranty laws allow consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer may use nonconformity as a pretext for getting rid of a contract he no longer wants. We show that this possibility of "opportunistic termination" might actually have positive effects. Under some circumstances, it will lead to redistribution in favor of the buyer without any loss of efficiency. Moreover, by curbing the monopoly power of the seller, a regime involving termination might increase welfare by enabling a more efficient output level in a setting with multiple buyers. These potential benefits are absent if renegotiation is possible. (JEL K12, C7, L40, D30) The Author 2010. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Alexander Stremitzer, 2012. "Opportunistic Termination," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(3), pages 381-406, August.
    • Handle: RePEc:oup:jleorg:v:28:y:2012:i:3:p:381-406
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    File URL: http://hdl.handle.net/10.1093/jleo/ewq004
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    Cited by:

    1. Omri Ben-Shahar & Eric A. Posner, 2011. "The Right to Withdraw in Contract Law," The Journal of Legal Studies, University of Chicago Press, vol. 40(1), pages 115-148.
    2. Nell, Mathias, 2007. "Contracts induced by means of bribery: Should they be void or valid?," Passauer Diskussionspapiere, Volkswirtschaftliche Reihe V-53-07, University of Passau, Faculty of Business and Economics.
    3. Mathias Nell, 2009. "Contracts obtained by means of bribery: should they be void or valid?," European Journal of Law and Economics, Springer, vol. 27(2), pages 159-176, April.
    4. Richard R.W. Brooks & Alexander Stremitzer, 2012. "On and Off Contract Remedies Inducing Cooperative Investments," American Law and Economics Review, American Law and Economics Association, vol. 14(2), pages 488-516.

    More about this item

    JEL classification:

    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • D30 - Microeconomics - - Distribution - - - General

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