On the use of practitioner surveys in commercial law research.

• Author: Katz, Avery Wiener
• Position: Response to article by Daniel Keating in this issue, p. 2678

Comments on Daniel Keating's `Exploring the Battle of the Forms in Action'

As Daniel Keating's principal article attests, the literature on U.C.C. section 2-207 and the "battle of the forms" is both vast and intricate.(1) That fact, together with the distinguished array of commentators assembled here, makes it unlikely that I will be able to say anything substantially original on that subject. Accordingly, in the spirit of this overall symposium, I will focus the bulk of my remarks not on the substantive issues raised by Keating's article, but on his methodology. In particular, I will suggest that Keating's empirical method -- the free-form, oral interview conducted personally by the principal researcher -- is less reliable, and more vulnerable to distortion by the biases of the interviewer and respondent, than he acknowledges. While Keating is correct that this "hands-on" method can yield substantial insight and unearth information that could not be found through structured surveys or review of written company records, the information thus generated is not subject to the usual controls provided by those more conventional methods. Absent such controls, the information is much more likely to be used to confirm the interviewer's or respondent's prior beliefs than to disconfirm them, or to corroborate conventional wisdom rather than debunk it. Thus, I would take his findings -- that commercial actors have adjusted fairly well to the use of standard form contracts, that the battle of the forms is relatively uncommon in practice, and that significant statutory reform is not in order -- with skepticism, at least until they have been confirmed by a more traditional empirical study that makes greater use of tabulated quantitative data and that takes greater precautions to screen out interpretative bias.

1. Unstructured Interviews and Secondhand Narrative: The Pitfalls of Impressionist Methodology

   Although the drawbacks of free-form interviews are well known, and although Professor Keating briefly mentions some of them in his article, it is worth restating them here a little more fully, if only to counterbalance the short shrift he gives them. To begin rather abstractly, it is a truism of modern accounts of scientific method that empirical data do not exist in a vacuum, separate from any theoretical framework. The world is not simply waiting out there to be observed; instead, it must be put in order. An empirical researcher therefore must choose among the various features of a complex reality, selecting some to notice and record, while ignoring countless others. Which aspects of the world are salient -- which are worth noticing w will necessarily depend on the theoretical lens of the observer. Similarly, the process of interpreting and summarizing data is also influenced by one's theoretical framework.

   Keating's unedited interview transcripts, for example, consist of approximately 280 pages in WordPerfect electronic format. His summary of these interviews takes up approximately twenty-three pages of his final article, nine of which describe his respondents' reactions to various proposals for statutory reform. In condensing this large body of interview material down to a coherent narrative, Keating necessarily had to suppress the bulk of the information it contained. In choosing what information to suppress and what to accentuate, he was necessarily motivated by his pre-existing views of what counted as signal and what as noise. A different researcher with different theoretical preconceptions might have made quite different choices.

   As I have said, these observations are commonplace ones; and Keating does refer to them before launching into his main narrative.(2) In my view, however, he does not sufficiently recognize their force. He does not cite any of the standard texts on survey research methods, for instance, or indicate that those texts generally disapprove the sort of unstructured interviews that he undertakes.(3) Nor does Keating recognize how the potential for interpretative bias, which threatens generally to infect all empirical studies, was exacerbated by several specific features of his particular methodological approach.

   Before elaborating on these specific features, though, let me point out just one instance of the bias that can be introduced through the interview method, just to illustrate the risks that are involved. In focusing on this example, I don't intend to claim that it is randomly chosen or that I am immune from any of the methodological problems that I have just described. On the contrary, the example was particularly salient to me because it stems from a theoretical claim that I regard as mistaken and have argued against in prior writings.(4) But the example is still telling, I think, because it illustrates concretely how a researcher's theoretical preconceptions can enter into -- and subtly bias -- a good faith attempt at empirical description.

   The example that jumped out at me from Keating's article is an old and familiar claim within the literature on standard form contracts. It is, in short, that the use of standard forms and resistance to negotiating over them has something to do with market power -- or as Keating calls it, leverage. Keating, like many influential writers before him, assumes that large and powerful market actors will want to use standard forms, and to present those forms on a take-it-or-leave-it basis, in order to maximize their profits from exchange at the presumed expense of their contractual partners.(5) This claim doesn't play a central role in his article, but he does refer to it at several points in his discussion and reports that his respondents believe it to be true.(6) Further, at the end of his article, he devotes an entire paragraph to this claim and identifies it as the factor that is likely to have the single most significant effect on the battle of the forms in the future.(7)

   The reason why this claim stood out for me is that it is inconsistent with the standard economic account of how firms with market power maximize profits. While it is true that the users of form contracts are often unwilling to do business on terms other than their standard ones, this is not a function of monopoly. Standardization of contracts, like other forms of mass production, lowers the cost of individual transactions, thus giving competitive firms as well as monopolists an incentive to use it. The notion that a monopolist would want to offer lower-quality or more self-serving contract terms than a competitive firm depends upon a mistaken analogy between quantity and quality. Specifically, a monopolist finds it profitable to produce an inefficiently low quantity of goods because that forces consumers to compete against each other for the reduced supply, thus bidding up the price.

   If the monopolist seller tried to reduce the quality of its contract terms, in contrast, it would lower the value of its product to its buyers, reducing the markup it could profitably charge. Similarly, if a monopoly buyer (often called a monopsonist) reduced the quality of its contract terms, it would raise its suppliers' costs and thus reduce the possible discount it could obtain from them. For this reason, a profit-seeking monopolist generally will make the most of its market power by choosing a level of quality and service that best suits the preferences of its marginal customers and suppliers, for to do otherwise sacrifices profits. If it is worth more to the customer or supplier to have its own standard terms than it is to the monopolist, then the monopolist does better to yield on contract...