Competition and the Quality of Standard Form Contracts: The Case of Software License Agreements

Authors


  • I am grateful to Barry Adler, Bill Allen, Jennifer Arlen, Yannis Bakos, Bernie Black, Jean Braucher, Clay Gillette, Marcel Kahan, Lewis Kornhauser, Russell Pittman, Roberta Romano, Robert Scott, Peter Siegelman, Jay Westbrook, Jeff Wurgler, Kathy Zeiler, two anonymous referees, and participants at the Harvard-U. Texas Joint Conference on Commercial Realities, Conference of Empirical Legal Studies, and AALS 2007 Meetings Section on Law and Economics for helpful suggestions, and to Leonard Lee, Christine Murphy, and Yuriy Prilutsky for excellent research assistance.

*New York University School of Law, 40 Washington Sq. S., New York, NY 10012; email: wurglerf@juris.law.nyu.edu.

Abstract

Standard form contracts are pervasive. Many legal academics believe that they are unfair. Some scholars and some courts have argued that sellers with market power or facing little competitive pressure may impose one-sided standard form terms that limit their obligation to consumers. This article uses a sample of 647 software license agreements drawn from many distinct segments of the software industry to empirically investigate the relationship between competitive conditions and the quality of standard form contracts. I find little evidence for the concern that firms with market power, as measured by market concentration or firm market share, require consumers to accept particularly one-sided terms; that is, firms in both concentrated and unconcentrated software market segments, and firms with high and low market share, offer similar terms to consumers. The results have implications for the judicial analysis of standard form contract enforceability.

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