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Abstract

The advent of the modern corporation separated not only ownership from control but also production from consumption. The agency problem that arose between owners and managers of firms also emerged between producers and consumers. Just as corporations needed to lock-in capital to sustain large-scale operations, so too did they need to lock-in consumers to justify and reduce the risks of asset-specific investment. Large corporate operations succeeded because they solved both the capital and consumer lock-in challenges. This Article explores ways in which modern consumers, like shareholders, can find themselves in a very real sense locked into the corporations with which they associate. This aspect of consumption has gone unrecognized in corporate theory and normative accounts of desirable corporate governance frameworks. My analysis suggests that market forces and external regulatory relief are inadequate salves to the consumer predicament that I describe. I conclude that a departure from the shareholder wealth maximization norm and an embrace of a multi-stakeholder corporate governance regime may be necessary to overcome agency problems associated with consumer lock-in. Part II examines the role that “lock-in” plays in modern theories of the firm and in the historical development of corporate enterprise, including analysis of the agency problems associated with shareholder lock-in. Part III explores the relationship between the modern corporation and consumption, including an examination of the consumer’s place in prevailing views of desirable corporate governance norms. Part IV examines several different ways in which consumers of corporate goods and services can become “locked” into consumption relationships with particular firms in a manner that parallels the shareholder lock-in predicament. Part IV also explores the dearth of consumer lock-in solutions as compared to solutions that shareholders have available to solve their lock-in problems. Having begun to integrate consumer lock-in into a more comprehensive theory of the firm, Part V concludes that some corporate law solutions that have been developed to ameliorate shareholder lock-in problems might also be useful to aid locked-in consumers. While this would work a substantial change in corporate governance law, I argue that it would not cause an unduly disruptive change in corporate governance practice.

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