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Opportunistic Termination

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  • Stremitzer, Alexander

Abstract

If a seller delivers a good non-conforming to contract, European and US warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer may use non-conformity 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 favour 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.

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Bibliographic Info

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 226.

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Date of creation: Aug 2008
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Handle: RePEc:trf:wpaper:226

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Keywords: contract law; warranties; breach remedies; termination; harmonization;

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Cited by:
  1. Mathias Nell, 2009. "Contracts obtained by means of bribery: should they be void or valid?," European Journal of Law and Economics, Springer, Springer, vol. 27(2), pages 159-176, April.
  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.

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