Volume 85, Number 5

November 2010

Disciplining Standard Form Contract Terms Through Online Information Flows: An Empirical Study

Nishanth V. Chari

Standard Form Contracts (SFCs) are at the heart of an ongoing debate among legal and empirical scholars about the extent to which market forces serve to discipline sellers into providing fair contract terms. Scholars have long assumed that consumers do not read SFCs ex ante (e.g., at the time of purchase or installation) but have generally left open the possibility that consumers might read SFCs ex post (e.g., if there is a breakdown in service or functionality). This Note examines empirically the extent to which online product ratings might serve as a conduit of information regarding contract terms from ex post to ex ante consumers. Comparing online product ratings from and with software license agreements graded according to a contract bias index, I find that product ratings on surprisingly bear a negative correlation with contract bias. That is, more highly rated products tend to come bundled with more pro-seller terms. My results suggest that while product ratings may contain information about contract terms, this information is not conveyed in a way that is useful to ex ante consumers and, accordingly, is unlikely to discipline sellers. This Note thus provides guidance for future research and policy initiatives seeking to explore ways to discipline sellers into providing fairer and more efficient contract terms.