Mandatory Arbitration for Customers But Not for Peers: A Study of Arbitration Clauses in Consumer and Non-Consumer Contracts

Abstract

We conducted a study of contractual practices by well-known firms marketing consumer products, comparing the firms\u27 consumer contracts with contracts the same firms negotiated with business peers. The frequency of arbitration clauses in consumer contracts has been studied before, as has the frequency of arbitration clauses in non-consumer contracts. Our study is the first to compare the use of arbitration clauses within firms, in different contractual contexts. The results are striking: in our sample, mandatory arbitration clauses appeared in more than three-quarters of consumer contracts and less than one tenth of non-consumer contracts (excluding employment contracts) negotiated by the same firms. This suggests that the firms\u27 faith in arbitration is considerably weaker than they have claimed. For the purpose of business-to-business disputes, in which they may be either plaintiffs or defendants, they prefer the option to litigate in court