Ezra Friedman, ‘Competition and Unconscionability’

This paper argues that the conventional legal doctrine that emphasizes lack of choice among suppliers or contracts as an element of unconscionability is misguided. I show that when a seller with significant market power offers only one contract, fear of alienating sophisticated customers can discourage the seller from exploiting the unsophisticated with an inefficient contract. In contrast, competitive sellers may lose money on sophisticated customers, and be willing to sacrifice them in order to exploit the unsophisticated. Likewise, offering a choice of contracts enables sellers to exploit the unsophisticated while offering an efficient contract to the sophisticated.

Ezra Friedman, Competition and Unconscionability. American Law and Economics Review (Fall 2013) 15 (2): 443-494. doi: 10.1093/aler/aht008.

First posted 2013-10-17 18:43:47

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