University of Michigan Legal Working Paper Series
University of Michigan John M. Olin Center for Law & Economics Working Paper Series
Boilerplate and Economic Power in Auto Manufacturing Contracts
Abstract
This article studies the standard form contracts used by automobile manufacturers to purchase auto parts. It explores how the contracts reflect divisions of bargaining power, asymmetric information, problems of hold-up and renegotiation, and market competition. Based on interviews with representatives of buyers and suppliers, the article also describes the process of drafting the forms, the negotiation over price and other terms in the shadow of these forms, and the opportunities for non-drafters to extract improved terms. Some of the main lessons are: (i) The terms of the contracts and the bidding process prevent ex-post hold-up by suppliers (in contrast to the claims made by Benjamin Klein and others based on the GM/Fisher Body contract); (ii) There is surprisingly little ad-hoc tailoring of terms, even when such tailoring can increase the surplus from the deal; (iii) Internal organization structures are harnessed effectively to secure favorable bargaining outcomes; (iv) There is a significant variation between the standard forms utilized by the big automakers, in some of the most important aspects of the deals. This variation suggests that some of the terms are inefficient.
Subject Area
Contracts
Recommended Citation
Omri Ben-Shahar and James J. White,
"Boilerplate and Economic Power in Auto Manufacturing Contracts"
(November 2005).
University of Michigan Legal Working Paper Series.
University of Michigan John M. Olin Center for Law & Economics Working Paper Series.
Working Paper 54.
http://law.bepress.com/umichlwps/olin/art54
No readers' reactions have been posted for this article. To submit one, copy the URL for this article (http://law.bepress.com/umichlwps/olin/art54) and click here.