Fairness Preferences in Distributive Bargaining

Abstract

In contract law practice, the “material difference” and “knockout” rules are frequently used mechanisms for determining whether a valid, enforceable contract is formed. More specifically, both legal rules attempt to articulate the terms of a “contract by conduct”. This paper demonstrates that, in a bilateral monopoly situation, the “deal-is-on” philosophy as expressed in the “material difference” and “knockout” rules thereby affects and promotes economic exchange.