Rationalizing Drennan: On Irrevocable Offers, Bid Shopping and Binding Range

Grosskopf Ofer and Medina Barak
Additional contact information
Grosskopf Ofer: Tel-Aviv University
Medina Barak: Hebrew University of Jerusalem

Review of Law & Economics, 2007, vol. 3, issue 2, 321-361

Abstract: 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.

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2202/1555-5879.1127 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:rlecon:v:3:y:2007:i:2:n:4

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/rle/html

DOI: 10.2202/1555-5879.1127

Access Statistics for this article

Review of Law & Economics is currently edited by Francesco Parisi

More articles in Review of Law & Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().