'And if I by Beelzebub Cast Out Devils, …': An Essay on the Diabolics of Network Failure

Abstract

Following a first euphoric phase about the advantages of commercial networks, there is now a host of reports attesting to their confusing over-complexity. Network failures are manifold: overwhelming environment information, coordination blockades, severe interface problems, permanent decision conflicts, a-symmetric power relations, opportunistic behaviour of nodes and centre, as well as negative externalities of net activities. In order to overcome network failure this article pursues an institutional analysis of networks: Where can the ‘opportunity structure’ be found, the social potential for an increasingly non-hierarchical coordination within the net? Is there a ‘conceptual readiness’ of the law which would enable it to set this potential free?

The article suggests to develop organizational forms and responsibility rules for the law of networks that will hold on to the advantages of the decentralized organization of nodes while decisively strengthening their mutual coordination. This will drastically reduce the privity principle for all those contracts connected by the network. Furthermore, it will introduce different legal rules for multilateral contracts with regard to their formation, their validity, their defaults, and their termination. In addition, it will facilitate quasi‐corporate governance structures in multilateral contracts identifying the legal conditions under which contractual networks will have to be treated as collective actors. Finally, it will increase individual and collective liability for faulty coordination vis‐à‐vis suppliers and buyers.

Keywords: Network, Privity of Contract, corporate governance

JEL Classification: K00, K12, K40