This Note investigates how incomplete contracting between merchant parties may harm third-party consumers. After defining this phenomenon and noting several examples, this Note considers solutions to the social inefficiencies arising from these merchant-to-merchant contracts. To do so, this Note engages in a detailed case study of generic drug shortages and how incomplete failure-to-supply provisions affect patients’ ability to access essential drugs. Such shortages typify the incomplete contracts at issue in this Note. Ultimately, this Note proposes a regulatory solution to firms’ reliance on default rules that would reduce the incidence of extreme negative externalities on third parties.

* J.D., Stanford Law School, 2025; Ph.D. Candidate, Stanford University Department of Economics. I extend my gratitude to Julian Nyarko for his valuable feedback on the early idea behind this Note; to Katja Hofmann for helping me develop an understanding of the pharmaceutical drug market over the years; to Cameron Paige for her thoughtful editing; to the other hardworking editors of the Stanford Law Review, especially Amy Cass, Dave Kim, Sarah Ryan, Abigail Wolfe, and Brian Xu; and to Knight-Hennessy Scholars at Stanford University for supporting my work through a graduate fellowship award.