Opportunistic Termination
If a seller delivers a good nonconforming to contract, European and US warranty laws allow consumers to choose between some money transfer and termination. Termination rights are, however, widely criticized, mainly for fear that the buyer may use nonconformity 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 favor 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. These potential benefits are absent if renegotiation is possible. (JEL K12, C7, L40, D30) The Author 2010. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.
Year of publication: |
2012
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Authors: | Stremitzer, Alexander |
Published in: |
Journal of Law, Economics and Organization. - Oxford University Press. - Vol. 28.2012, 3, p. 381-406
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Publisher: |
Oxford University Press |
Saved in:
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