If a seller delivers a good non-conforming to the contract, Article 2 of the UCC as well as European warranty law allows consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer resorts to "opportunistic termination", i.e. takes non- conformity as a pretext to get rid of a contract he no longer wants. We show that the possibility of opportunistic termination might actually have positive ef- fects. Under some circumstances, it will lead to redistribution in favour of the buyer without any loss of effciency. Moreover, by curbing the monopoly power of the seller, a regime involving termination increases welfare by enabling a more effcient output level in a setting with multiple buyers.
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Paper provided by SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Papers with number
226.
Find related papers by 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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