Power and selection of contract terms: The case from the Brazilian orange juice sector

Poder e seleção de termos contratuais: o caso do setor de suco de laranja brasileiro

Poder y condiciones contractuales de selección: el caso del sector de zumo de naranja brasileño

ABSTRACT

We propose a model to explain how contract terms are selected in the presence of a form of economic power: contract power. The orange juice sector is used to illustrate an analysis that demonstrates the effects of contract power on the economic organization of the sector. We define contract power as the ability to exploit contractual gaps or failures of contractual provisions, which are strategically left incomplete. Empirical evidence from content analysis of antitrust documents supports the logic of contract power in the orange juice sector in three forms: avoiding changes to payment methods from weight to solid contents (quality); using information asymmetries to manipulate indexes that calculate the formula of orange prices; and deliberately harvesting oranges late in order to dehydrate the fruit, which consequently reduces weight and price. The paper contributes to understanding the selection of contract terms and the debate about how antitrust offices can deal with this issue.

Keywords: contracts; power; measurement cost; agribusiness