Abstract:
Exit from contract is one of the most powerful consumer protection devices, freeing consumers from bad deals and keeping businesses honest. Yet consumers often choose transactions with lock-in provisions, trading off exit rights for other perks. This article examines the costs and benefits of free exit, as compared to the lock-in alternative. It argues that present regulation of exit penalties is poorly tailored to address concerns about lock-in, particularly in light of increasingly ubiquitous market-based solutions. The article also calls (regulatory) attention to loyalty rewards, which are shown to be as powerful as exit penalties, and equally detrimental.
Oren Bar-Gill and Omri Ben-Shahar, Exit from Contract. Journal of Legal Analysis (2014) 6 (1): 151-183, doi: 10.1093/jla/lau003. First published online: July 11, 2014.
First posted 2014-10-01 07:43:32
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