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Does Anyone Read the Fine Print? Testing a Law and Economics Approach to Standard Form Contracts

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Abstract

A cornerstone of the law and economics approach to standard form contracts is the Òinformed minorityÓ hypothesis: in competitive markets, a minority of term-conscious buyers is enough to discipline sellers from offering unfavorable boilerplate terms. The informed minority argument is widely invoked to limit intervention in consumer transactions, but there has been little empirical investigation of its validity. We track the Internet browsing behavior of 45,091 households with respect to 66 online software companies to study the extent to which potential buyers access the standard form contract associated with software purchases, the end user license agreement. We find that only one or two out of every thousand retail software shoppers chooses to access the license agreement, and those that do spend too little time, on average, to have read more than a small portion of the license text. The results cast doubt on the relevance of the informed minority mechanism in a specific market where it has been invoked by both theorists and courts and, to the extent that comparison shopping online is relatively cheap and easy, suggest limits to the mechanism more generally.

Suggested Citation

  • Yannis Bakos & Florencia Marotta-Wurgler & David R. Trossen, 2009. "Does Anyone Read the Fine Print? Testing a Law and Economics Approach to Standard Form Contracts," Working Papers 09-04, NET Institute, revised Aug 2009.
  • Handle: RePEc:net:wpaper:0904
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    Cited by:

    1. Thomas J. Maronick, 2014. "Do Consumers Read Terms of Service Agreements When Installing Software? - A Two-Study Empirical Analysis," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 4(6), pages 137-145, June.
    2. Procaccia Yuval & Harel Alon, 2012. "On the Optimal Regulation of Unread Contracts," Review of Law & Economics, De Gruyter, vol. 8(1), pages 59-89, April.
    3. Zev J. Eigen, 2012. "When and Why Individuals Obey Contracts: Experimental Evidence of Consent, Compliance, Promise, and Performance," The Journal of Legal Studies, University of Chicago Press, vol. 41(1), pages 67-93.
    4. Florencia Marotta-Wurgler, 2012. "Does Contract Disclosure Matter?," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(1), pages 94-119, March.
    5. Mitja Kovač & Ann-Sophie Vandenberghe, 2015. "Regulation of Automatic Renewal Clauses: A Behavioural Law and Economics Approach," Journal of Consumer Policy, Springer, vol. 38(3), pages 287-313, September.
    6. N. Helberger & M. Loos & Lucie Guibault & Chantal Mak & Lodewijk Pessers, 2013. "Digital Content Contracts for Consumers," Journal of Consumer Policy, Springer, vol. 36(1), pages 37-57, March.

    More about this item

    Keywords

    online contracts; clickwrap; informed minority; ecommerce law; contracts law; standard form contracts;

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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