Rationalizing Drennan: On Irrevocable Offers, Bid Shopping and Binding Range
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Ofer Grosskopf
Courts may determine that an offer is irrevocable due to the offeree’s reasonable reliance on it. For instance, the landmark case of Drennan v. Star Paving Co. (1958) held a subcontractor’s price offer to be irrevocable once it had been relied upon by the general contractor in computing his overall bid. However, a rule of implied irrevocability raises two main difficulties. First, it seems unfair to force the offeror to commit, but not the offeree. Second, from an ex ante perspective, the implied irrevocability rule seems to deter parties from submitting low-priced, unqualified offers. These concerns have led several scholars to argue for modification of the rule. This paper rationalizes the implied irrevocability rule by demonstrating that the above concerns are unfounded. We demonstrate that whereas some restrictions on the offeree’s freedom to conduct bid shopping ex post (i.e., after the uncertainties are resolved) are essential in order to allow him to receive viable price offers ex ante, these restrictions need not be absolute nor legally enforced. Partial restrictions, in the form of a self-enforced Binding Range, may well suffice. The plausible existence of a self-enforced Binding Range ensures that offerors have incentives to submit irrevocable bids because they can expect to earn a profit by submitting the best offer. This paper characterizes the optimal size of the Binding Range, and explores what legal provisions should be applied when the self-enforced Binding Range is sub-optimal.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- The Law and Economics of Cedar-Apple Rust: State Action and Just Compensation in Miller v. Schoene
- Does Punishment Matter? A Refinement of the Inspection Game
- Optimal Law Enforcement when the Offender can Dispose of his Wealth
- Rationalizing Drennan: On Irrevocable Offers, Bid Shopping and Binding Range
- Searching for Efficient Enforcement: Officer Characteristics and Racially Biased Policing
- Redistribution Mechanisms
- Using the Event Study Methodology to Measure the Social Costs of Litigation - A Re-Examination Using Cases from the Automobile Industry
- Comparative Causation and Economic Efficiency: When Activity Levels are Constant
- Less Crime, More (Vulnerable) Victims: Game Theory and the Distributional Effects of Criminal Sanctions
- Property Rights to Radio Spectrum in Guatemala and El Salvador: An Experiment in Liberalization
- Economic Analysis of Law in North America, Europe and Israel
- Path Dependence or Convergence? The Evolution of Corporate Ownership Around the World
- On the Similarity of Bilateral Harm and Unilateral Harm with Role-Type Uncertainty
- The Division of Profit in Sequential Innovation for Probabilistic Patents
- Accuracy Enhancement, Agency Costs, and Disclosure Regulation
