Book contents
- Frontmatter
- Contents
- Preface
- List of Contributors
- PART ONE WHY IS BOILERPLATE ONE-SIDED?
- 1 One-Sided Contracts in Competitive Consumer Markets
- 2 Cooperative Negotiations in the Shadow of Boilerplate
- 3 Boilerplate and Economic Power in Auto-Manufacturing Contracts
- 4 “Unfair” Dispute Resolution Clauses: Much Ado About Nothing?
- 5 The Unconventional Uses of Transaction Costs
- PART TWO SHOULD BOILERPLATE BE REGULATED?
- PART THREE INTERPRETATION OF BOILERPLATE
- PART FOUR COMMENTARY
- Notes
- Index
3 - Boilerplate and Economic Power in Auto-Manufacturing Contracts
Published online by Cambridge University Press: 02 December 2009
- Frontmatter
- Contents
- Preface
- List of Contributors
- PART ONE WHY IS BOILERPLATE ONE-SIDED?
- 1 One-Sided Contracts in Competitive Consumer Markets
- 2 Cooperative Negotiations in the Shadow of Boilerplate
- 3 Boilerplate and Economic Power in Auto-Manufacturing Contracts
- 4 “Unfair” Dispute Resolution Clauses: Much Ado About Nothing?
- 5 The Unconventional Uses of Transaction Costs
- PART TWO SHOULD BOILERPLATE BE REGULATED?
- PART THREE INTERPRETATION OF BOILERPLATE
- PART FOUR COMMENTARY
- Notes
- Index
Summary
Editor's Note:This chapter examines the boilerplate contracts used by automakers to procure parts from suppliers. It identifies drafting and negotiation techniques that are used to secure advantageous terms. It also explores some prominent specific arrangements as evidence that firms with bargaining power are exploiting their position to dictate self-serving but inefficient terms. Finally, it shows how standard contractual clauses solve the problem of ex-post hold-up by suppliers.
Manufacturing contracts in the automotive industry have served a canonical role in the economic theory of contract and bargaining. The famous story of General Motors' relationship with its supplier Fisher Body in the 1920s is a landmark illustration of the problem of contractual hold-up, underlying a prominent theory of vertical integration and the nature of the firm. The theoretical fascination with automotive procurement contracts is well deserved. There may be no other merchant-to-merchant contractual template that governs such fantastic economic stakes — hundreds of billions of dollars per year – and implemented through a process that involves almost no negotiation of the legal terms. Boilerplate rules these transactions.
There is a long line of law-and-economics scholarship studying the attributes of standard-form terms in contracts between sophisticated parties in high-stakes transactions. One of the benchmark predictions in this literature is that contractual terms have to be efficient if they are to be consistently used by the parties. Any rent-seeking power that a party has should be translated into a price advantage; it should not be used to dictate selfish but inefficient performance terms.
- Type
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- Information
- BoilerplateThe Foundation of Market Contracts, pp. 29 - 44Publisher: Cambridge University PressPrint publication year: 2007
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