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Abstract

This Article calls for a move to a new phase in courts’ attitudes toward consumer contracts. Currently, courts applying the unconscionability doctrine to consumer contracts focus on the characteristics of the parties and the transaction. We suggest that rather than examining each consumer contract in isolation, courts should inquire whether there is competition, or potential competition, over contracts in the supplier’s market. As we show, competition over contracts is different from competition over products or services. In order to assess the degree of competition, or potential competition, over contracts, courts should look at the particular features of the supplier’s market identified in this Article, as well as examine the potential strategic interaction among competitors. We argue that when competition, or the threat of such competition, over consumer contracts is sufficiently strong, these contracts should be deemed efficient and fair, and courts should not strike down clauses incorporated into such contracts. Interestingly, and counterintuitively, this conclusion holds even when consumers are uninformed. We offer workable guidelines for courts as to how they could implement the market-based approach proposed in this Article and demonstrate how this approach could produce outcomes opposite to, but fairer and more efficient, than the ones courts conventionally adopt or legal scholars offer. We also identify oppressive techniques suppliers employ in their contracts with consumers that are currently ignored completely by courts and are expected to survive even vigorous competition over contracts. We suggest that courts should be particularly suspicious of such oppressive techniques and scrutinize them with special care.

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