Exit From Contract
Journal of Legal Analysis, Vol. 6, p. 151 (2014)
33 Pages Posted: 18 Feb 2013 Last revised: 23 Feb 2018
Date Written: July 11, 2014
Abstract
Exit from contract is one of the most powerful consumer protection devices, freeing consumers from bad deals and keeping businesses honest. Yet consumers often choose transactions with lock-in provisions, trading off exit rights for other perks. This article examines the costs and benefits of free exit, as compared to the lock-in alternative. It argues that present regulation of exit penalties is poorly tailored to address concerns about lock-in, particularly in light of increasingly ubiquitous market-based solutions. The article also calls (regulatory) attention to loyalty rewards, which are shown to be as powerful as exit penalties, and equally detrimental.
JEL Classification: K12, L14
Suggested Citation: Suggested Citation
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