CAPACIDAD DE PLANTA ACTUAL

standard terms: it would not be rational, they suffer from biases, et cetera. Even though a considerable number of authors suggest that consumers do not read standard terms, evidence to this effect is hardly ever provided.²²³ A limited number of surveys and empirical studies on whether or not consumers reported that they had read standard terms have been undertaken (Hillman, 2006a; Becher and Unger-Aviram, 2009; Stark and Choplin, 2009). Even less studies of actual reading behaviour have been conducted (Bakos, Marotta-Wurgler and Trossen, 2009; Stark and Choplin, 2009). The results of all these studies point in the same direction: very few consumers read standard terms. In some contexts however, consumers report they would read the standard terms, which allows for a further examination of the factors that could influence consumer reading behaviour. Also, the effectiveness of disclosure duties is discussed in the light of empirical findings.

a. Do consumers read standard terms?

The informed minority theory that is championed mainly in neoclassical economics but also referred to in information economics requires a minority of about 30% of consumers to read standard terms in order for this reading minority to be able to discipline the market. In empirical studies, research has been done to establish whether this required percentage is met. Based upon a survey of reported reading behaviour of e-standard forms, Hillman concludes that people generally do not read e-e-standard forms beyond price and description (Hillman, 2006a). The Internet might provide benefits for comparing sellers and contracts and thus render reading contracts potentially more worthwhile.²²⁴ However, consumers do not seem to take advantage of this new development. Hillman reports that most consumers do not read all terms in e-standard contracts. Only 4% of the participants reported they would read e-standard terms under any circumstance. 44% reported they would not read. The other consumers would read only under specific circumstances. Generally, less than the before mentioned required 30% of consumers reads standard terms, whether these terms are online or in paper

223 To mention just a few of the instances where the claim that consumers do not read standard terms is made without referring to any significant empirical evidence: Whitford (1973: 426), Kornhauser (1976:

1163), Trebilcock and Dewees (1981: 104), Rakoff (1983: 1177), Gillette (2004: 680) and Becher (2008:

724, also stating that numerous commentators have mentioned this). De Geest (2002: 221) claims

“(e)veryday life experience teaches us that typically less than 1% of all consumers read standard term clauses before buying the item”.

224 See Hillman and Rachlinski (2002) and Hillman (2006a; 2006b) for a discussion on how online boilerplate is different from paper versions. Both the survey of Hillman (2006a) and the survey of Becher and Unger-Aviram (2009) report not much difference between online or paper versions of standard term contracts. This research will not treat the two versions differently either. Compare Hillman and Rachlinski (2002: 474-86) who conclude that even though online contracting lessens the need for legal intervention as it will be easier to compare contracts and thereby should enable consumers to protect themselves from abuse, consumers might not be able to take advantage of these benefits due to cognitive difficulties.

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version. However, when the vendor is unknown, or when the value of the contract is high, more than a third of consumers report that they would read the standard terms.

Bakos, Marotta-Wurgler and Trossen test actual reading behaviour in internet contracting. They find that only 0,2% of consumers access the standard term form on the website. The average time spent reading the standard terms was about 48 seconds.

Therefore, Bakos et al. assess the reported percentage of reading consumers to be a

“substantial overestimate of the number of effectively informed consumers” (Bakos et al., 2009: esp. 26). In their study that reveals actual reading of standard term contracts in an experimental setting, Stark and Choplin find that 95,6% of participants fail to read the contract before signing it (Stark and Choplin, 2009).²²⁵ In a survey asking respondents about their contracting behaviour, they again find that a sizeable number of consumers signed the contract without reading (all) the terms. This does depend on the type of contract. In their survey on reported reading behaviour, they find the following (Stark and Choplin, 2009: 691-6): terms on downloading software are hardly ever read in full (only by 5% of consumers) but mortgage contracts on the other hand are reportedly read fully by 73% of consumers. Car rental contracts are reportedly read by 72% of consumers, and a mere 57% of participants in the study claim to have read the contract to purchase their home in full. The study undertaken by Becher and Unger-Aviram confirms the results of the other studies by concluding that consumers in many cases do not read standard terms (Becher and Unger-Aviram, 2009). Again however, whether or not consumers read standard terms is reported to depend upon the context. Signing up for a bank account will make most people sign without reading the terms (92%), a car rental induces a little more reading but still not much (81% do not read). Standard terms at the laundry service are read even more often than at the car rental (75% do not read). The only situation in this study that apparently gives an incentive to read standard terms is signing up a child for a nursery school (24% not reading the contract terms).

From these empirical results, it can be concluded that the common view that consumers do not read standard terms can empirically be confirmed in some contexts.

However, some other contexts or contract characteristics might give an incentive to read to number of consumers that is sufficiently large to possibly enable them to discipline the market. Therefore, the reasons that consumers gave for reading or choosing not to read the contract deserve some further consideration.

225 See Stark and Choplin (2009: 678-80) for details on the materials and procedures of the study. It consisted of asking students to sign a standard form of 3 pages for participating in an experiment. The form contained rather onerous terms, such as the requirement to give electric shocks to fellow students even if they screamed or cried for help. Students themselves could be forced to do push-ups, and would not be allowed to leave if they wanted to. Even though the terms themselves indicated that signing the form would not be in the best interest of participants, less than 5% of the participants read the terms, and only 3%

refused to sign the form.

b. Reasons given for failure to read

In the study on actual reading behaviour, Stark and Choplin tried to find out what were the reasons for participants for choosing not to read the contract (Stark and Choplin, 2009: 684-6). Following that study, the most important issue for not reading terms according to consumers, is trust. When consumers trust their counterparty, and they trust the institutions to make sure that any onerous contract terms will not be enforced against them, they do not read standard terms. Other issues that contributed to a failure to read were the length of the form (even though the form in question was only 3 pages), the fact that the form was perceived as boring, and that participants were lazy and impatient and wanted to get on. Some items were, perhaps surprisingly, not rated as very important factors in the decision not to read, such as difficulties in understanding the form, font size, long sentences, inability to negotiate, and the preservation of the image of good and trustworthy counterpart. Participants moreover believed that if their counterpart would have insisted that they read the standard form, they would have been more inclined to do so. Additionally, they did not think the standard terms would contain anything important for them to know, or anything other than forms they claimed to have read in the past.

Trust in the company is confirmed as an important factor in reading behaviour by Bakos et al. (Bakos et al., 2009). They find that online standard terms are more likely to be accessed when the company is small, or when “suspicious” products such as freeware (free software) are being offered. Furthermore, consumers who are older and consumers who have a higher income are more likely to access online standard forms. Search and reading costs might be lower for these groups, as they are likely to have more time (older consumers) and are confronted with less difficulties when reading standard terms (higher income consumers have on average enjoyed higher levels of education). The value of the contract is also an important positive factor to the probability of consumers reading the contract. Hillman finds that the main reason that consumers fail to read is that they are in a hurry. Less important, but still a significant factor in the decision not to read are certain underlying beliefs, such as the belief that nothing will go wrong, that the terms will be fair, and that competitors’ terms will be comparable (Hillman, 2006a: 297-8). A higher value of the contract and unfamiliarity with the vendor further increase the likelihood of reading.

Becher and Unger-Aviram report that legal language, font size and print density cannot be shown to have a large impact on the failure to read (Becher and Unger-Aviram, 2009). According to this report, the value of the contract is the most important factor in deciding whether of not to read standard terms, followed by the length of contract and the possibility to change contract terms. The importance of contract value is illustrated by the high number of consumers that report reading terms of a nursery school (only 24% report not reading the standard terms). This contract holds a higher value, as any potential damage is likely to affect (among others) a loved one who the consumer feels responsible for. The possibility to change or improve contract terms is a factor in the decision (not) to read. Consumers are more likely to read contracts when they are able to change contract

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terms, even when consumers in the end decide to opt for the default rule. The mere possibility of choosing one’s contract makes one more inclined to read the default (Becher and Unger-Aviram, 2009: 21). Similarity among contracts is not a key factor.

Most of these aspects hold in ex ante and ex post settings on whether consumers opt to read their contracts. However, in the ex post setting, the factors that influence consumers’ intent to read contract terms are slightly different (Becher and Unger-Aviram, 2009: 19-20). The most influential factors are shown to be the cost of transaction, opportunity to learn new things, and opportunity to change or improve contract terms. However, the empirical results indicate that contract length, contract density, and font size are not considered important by consumers in their decision to read the standard terms. Generally though, consumers are much more likely to read standard terms ex post, when a conflict has arisen, than ex ante before signing the contract.

c. Discussion of the empirical results on consumer reading

The empirical studies reporting on whether or not consumers read standard terms reveal that not many consumers read. Bakos et al. conclude from their and other empirical tests that the informed minority theory, which is persistent in economic theory and claims that a minority of informed consumers can discipline the market, cannot be maintained (Bakos et al., 2009: 28-33).

Reasons that are reported by consumers for reading or failing to read largely correspond between studies, but not in all cases. The value of the contract is found to be important in all studies. When the value of the contract is high, consumers are more likely to read the contract. This can be explained by the fact that when the value of a contract is high, one-sided terms can be expected to result in higher losses. Whether or not the consumer knows her counterparty, and finds that she can trust him or her is indicated to have significant impact. These factors can be related to the reputation argument, and the fact that consumers rely upon legal institutions to provide protection from onerous terms. The length of the form and time constraints are also considered important factors in the decision not to read the form, but the inability to understand terms is not. Consumers might be (overoptimistically) assuming that they would be able to understand the terms. The possibility to negotiate the terms to the contract might be another factor, as consumer report that not being able to change the terms is a factor in them deciding not to read.

Not all factors are found to be important in the different studies. Although Hillman, Stark and Choplin report that similarity between contracts is a mildly important reason for not reading terms, Becher and Unger-Aviram do not report this factor to be significant. Also, the ability to negotiate terms is not considered an important factor in the study by Hillman, but Becher and Unger-Aviram report that the possibility of choosing and negotiating contract terms increases the likelihood of consumer reading, even when consumers decide to opt for the default rules.

Becher and Zarsky note that reading standard terms is more likely ex post when a legal dispute arises (Becher and Zarsky, 2008: 312-4). When a dispute between parties has arisen, reading the contract terms can be highly beneficial from an informational perspective. Especially when a dispute has arisen, consumers wish to know where they stand.²²⁶ Even if the contract terms are likely to be binding, becoming familiar with rights and obligations can be a starting point in seeking to alter the contract ex post. Sellers might be willing to change the contract terms in individual contracts when confronted with a complaining consumer. Assertive consumers who take the effort to verbalise their complaint are more likely to have a negative impact on sellers’ reputation than silent consumers. Sellers have an incentive to appeal to these assertive consumers, and they know exactly who these consumers are: the ones that come up to the store and complain.

This also implies that consumers that do not complain are unlikely to be able to receive better terms. This observation increases concern on discrimination between complainers and silent consumers (Becher and Unger-Aviram, 2009: 22).

Furthermore, empirical research suggests that not all consumers will benefit equally from information disclosure. Consumers who are well-educated stand to benefit to a larger extent from information disclosure than consumers from socio-economically challenged backgrounds.²²⁷ These empirical studies make the concern regarding discrimination between silent and complaining consumers more important from an equity perspective (Whitford, 1973: 470; Stark and Choplin, 2009: 696-7). As has been mentioned above, Bakos et al. (2009) also find that higher income consumers are more likely to access online standard terms, confirming the equity-based suspicions. It can be concluded however that most contracts will only be read by a small minority of consumers. High value contracts might inspire higher percentages of readers, but they are not often concluded whereas consumers enter into numerous small value contracts on a daily basis. More empirical research is needed to determine the sectors of industry or the contract types in which consumer reading is more likely.

d. The effectiveness of disclosure duties on improved reading and understanding Empirical data also sheds doubt on the effectiveness of disclosure duties in stimulating consumers to read standard terms. The typical disclosure duties regarding increasing the opportunity to read for consumers, namely improving transparency, readability and intelligibility, are not considered important factors on the decision to read. Font size, legalese and long sentences are not put forward by consumers as being of great consequence in their decision to read the contract. The length of the form is considered to be a significant factor. Restricting the length of a standard form however is not a typical requirement under disclosure duties.

226 As Baird (2006: 938) already mentioned, legal terms only matter when something goes wrong.

227 See for instance McNeil et al. (1979), who show how information disclosure in the second-hand car market promotes the interest of well-educated consumers more than lower-class consumers, as the first are better able to understand, utilise and benefit from the provided information.

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Related to disclosure duties and more specifically to the requirement of availability, Bakos et al. claim that the accessibility of contract terms does not have any positive influence on readership. They claim that consumers do not read online standard forms,

“regardless of how accessible they are” (Bakos et al., 2009: 4-5). Mann and Siebeneicher find that only 6% of internet retailers have enforceable contracts on their websites. The other contracts would not survive court scrutiny as they do not correspond to the legal requirement of that respective legal system (Mann and Siebeneicher, 2008). The enforcement of disclosure duties therefore lacks in effectiveness. In addition, empirical studies suggest that consumers do not seem to gain better understanding from credit contracts that corresponded to relevant information duties than from contracts that do not conform to information requirements in relevant regulation (O'Shea, 2005). In a related point, some employees who were under the impression that their contracts stipulated that they, employees, could only be let off for cause, have been shown to have had in fact signed a contract in which they could be fired at will (Sunstein, 2001). Tenants will also believe terms of the contract to be more favourable than they actually are (Müller, 1970).

The contractual terms were available to the employees and consumers; they were just not interpreted correctly. The empirical studies thus suggests that disclosure duties are ineffective in increasing consumer reading and to some extent even the apprehension of the contract, and that disclosure duties are insufficiently enforced to induce compliance within the market.

e. Limitation of studying reported behaviour vis-à-vis actual behaviour

The difference between reported behaviour and actual behaviour is clearly relevant.

Stark and Choplin, Becher and Unger-Aviram, and Hillman do surveys in which consumers themselves report on their contracting behaviour, as has been discussed above.²²⁸ An observation should be raised with respect to the difference between studying reported behaviour and actual behaviour. Surveys on reported consumer behaviour provide information about what people claim they do or will do, but they do not measure actual behaviour. Reported behaviour, even though it is a valid research method, should be evaluated correspondingly (Becher and Unger-Aviram, 2009: 23).

Surveys that depend on reports of behaviour instead of testing actual behaviour can be influenced by perceptions of behaviour, of what is seen as appropriate behaviour by society, and consumer biases and heuristics such as overoptimism. Interestingly, even though social norms prevent people from actually reading a contract, as has been explained above, the behaviour that is theoretically seen as appropriate in this case is reading the contract. All consumers know they ‘should read contracts before signing them’. Therefore, the percentages of consumers that report reading in these surveys are likely to be higher than actual reading behaviour would warrant. Indeed, the study by Stark and Choplin testing actual reading behaviour reports lower percentages of reading

228 See above, section a.

than the before mentioned surveys, even than their own survey on reported behaviour.²²⁹

than the before mentioned surveys, even than their own survey on reported behaviour.²²⁹