ben-shahar and white

ben-shahar and white - BEN-SHAHAR & WHITE PP2 [CLEAN]...

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BEN-SHAHAR & WHITE PP2 [CLEAN] 2/7/2006 5:03 PM 1 BOILERPLATE AND ECONOMIC POWER IN AUTO MANUFACTURING CONTRACTS Omri Ben-Shahar * James J. White ** Table of Contents Introduction. ......................................................................................... 1 I. The Contracts. ......................................................................... 4 II. Drafting of Boilerplate . ..................................................... 13 III. Economic Power . .................................................................... 19 A. Lower-Tier Contracts. ......................................................... 20 B. Sellers’ Power Due to Switching Costs . .............................. 21 C. Bankruptcy. ......................................................................... 25 IV. The Exceptions: Deviations from the Boilerplate. ......... 26 A. Information Technology Transactions. ................................ 26 Conclusion. .......................................................................................... 29 Introduction Manufacturing contracts in the automotive industry have served a ca- nonical 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, un- derlying a prominent theory of vertical integration and the nature of the firm. 1 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 al- most no negotiation of the legal terms. Boilerplate rules these transactions. * Professor of Law and Economics, University of Michigan. B.A. 1989, Hebrew Univer- sity; LL.B. (Law) 1989, Hebrew University; LL.M. 1991, Harvard; Ph.D. (Economics) 1995, Harvard; S.J.D. 1995, Harvard. —Ed. ** Robert A. Sullivan Professor of Law, University of Michigan. B.A. 1956, Amherst Col- lege; J.D. 1962, University of Michigan. —Ed. We are grateful to many automotive officials who agreed to be interviewed for this study, and especially to Margaret Baxter of OESA for coordinating the suppliers’ survey. For helpful comments on early drafts, we thank the editors of the Michigan Law Review, the participants at the “Boilerplate”: Foundations of Market Contracts Symposium at the University of Michigan, and workshop participants at the universities of Texas and North Caro- lina, the Hebrew University, and Tel-Aviv University. Financial support from the Olin Center at the University of Michigan Law School is gratefully acknowledged. 1.
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ben-shahar and white - BEN-SHAHAR & WHITE PP2 [CLEAN]...

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