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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.

Suggested Citation

  • Stremitzer, Alexander, 2008. "Opportunistic Termination," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 226, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:226
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    File URL: https://epub.ub.uni-muenchen.de/13326/1/226_01.pdf
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    Cited by:

    1. Omri Ben-Shahar & Eric A. Posner, 2011. "The Right to Withdraw in Contract Law," The Journal of Legal Studies, University of Chicago Press, vol. 40(1), pages 115-148.
    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.
    3. Richard R.W. Brooks & Alexander Stremitzer, 2012. "On and Off Contract Remedies Inducing Cooperative Investments," American Law and Economics Review, Oxford University Press, vol. 14(2), pages 488-516.
    4. Mathias Nell, 2008. "Contracts Induced by Means of Bribery: Should they be Void or Valid?," Working Papers 042, Bavarian Graduate Program in Economics (BGPE).

    More about this item

    Keywords

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

    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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