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Competition and Unconscionability


  • Ezra Friedman


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. Copyright 2013, Oxford University Press.

Suggested Citation

  • Ezra Friedman, 2013. "Competition and Unconscionability," American Law and Economics Review, Oxford University Press, vol. 15(2), pages 443-494.
  • Handle: RePEc:oup:amlawe:v:15:y:2013:i:2:p:443-494

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    References listed on IDEAS

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    3. Nuno Garoupa & Mohamed Jellal, 2002. "A Note on Optimal Law Enforcement under Asymmetric Information," European Journal of Law and Economics, Springer, vol. 14(1), pages 5-13, July.
    4. Schmitz, Patrick W., 2000. "On the joint use of liability and safety regulation," International Review of Law and Economics, Elsevier, vol. 20(3), pages 371-382, September.
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    6. Shavell, Steven, 1995. "The Appeals Process as a Means of Error Correction," The Journal of Legal Studies, University of Chicago Press, vol. 24(2), pages 379-426, June.
    7. Burrows, Paul, 1999. "Combining regulation and legal liability for the control of external costs," International Review of Law and Economics, Elsevier, vol. 19(2), pages 227-244, June.
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    Cited by:

    1. Abraham L. Wickelgren, 2016. "An Economic Analysis of Arbitration versus Litigation for Contractual Disputes," Journal of Law and Economics, University of Chicago Press, vol. 59(2), pages 393-410.

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