e-journal
EXIT FROM CONTRACT
ABSTRACT
Exit from contract is one of the most powerful consumer protection devices, freeing
consumers from bad deals and keeping businesses honest. Yet consumers often choose
transactions with lock-in provisions, trading off exit rights for other perks. This article
examines the costs and benefits of free exit, as compared to the lock-in alternative. It
argues that present regulation of exit penalties is poorly tailored to address concerns
about lock-in, particularly in light of increasingly ubiquitous market-based solutions. The
article also calls (regulatory) attention to loyalty rewards, which are shown to be as
powerful as exit penalties, and equally detrimental.
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