Sid DeLong, The Parable of the Peloton

The Parable of the Peloton
By Sidney W. DeLong

Cooperation and competition are the yin and yang of contract. A voluntary contractual exchange is a cooperative “win-win” transaction that produces a gain in welfare for both participants. The measure of this subjective gain is the amount by which each trader values what it receives by more than it values what it gives up. This exchange surplus is familiarly known as the “pie,” as in “making the pie larger.”

But each party to a cooperative exchange is also trying to maximize its share of the exchange surplus pie at the expense of the other. This competition does not increase the pie and is a zero-sum or even a minus-sum transaction. The parties’ efforts to maximize their personal profit may be so great as to prevent the transaction or even to tear it apart. Pie-eating contests take place openly in the negotiation of the price terms of the contract, but they can also occur throughout the performance stages of the transaction as parties seek unbargained-for advantages over each other.

The norms of contract law must mediate the opposition between its cooperative and competitive elements. Sins against cooperation are the centrifugal forces that can tear the deal apart through illegitimate competition: hence the rules about good faith, duress, and opportunistic breach. But legitimate competition in the performance of a contract is not sinful but is an expected part with the self-seeking behavior that led to the bargain in the first place.  

Contract’s yin and yang of cooperation and competition are nicely illustrated in the sport of professional bicycle racing. I recently watched the glorious spectacle of the Tour de France and was rewarded with one of the most competitive events in my memory, as always against the matchless backdrop of La Belle France. It naturally led to reflections on contract law, as what does not?

Dozens of professional riders compete to win a long-distance road race with the prize each day going to the individual winner. For most of the race, most of the competitors ride in a large group, called the “peloton.” A group of riders can go much faster than a solo rider by taking turns leading and “drafting” behind each other, reducing the aerodynamic drag on the bikes behind the leaders. Individual riders who try to win the race by speeding up and “breaking away” from the peloton usually fail because their individual talent is overcome by the efficiency of the group.

The competitors are all professional riders, under contract to ride for their sponsor. Most riders on a team are ordered to ride in support of their star rider. They attend to his needs during the race and form a protective shield around him, easing his way to the point at which he will race away to the end alone. These contractual relationships are easy to understand, and do not warrant a parable.

But sometimes, more than one rider will break away, aiming at the formation of an elite coalition of riders from different teams that can employ its own drafting benefits to outride the peloton. Once the group is formed, they ride as an ad hoc team, taking brief turns leading and then drafting in a “pace line.” A good pace line is a thing of beauty to behold, with precise timing and positioning creating a super-fast organism. A good pace line can go much faster working together than any of them can go alone and often can out-pace the peloton. The more closely they cooperate, the faster they go.

Although they may be the product of pre-race planning, the breakaway alliances are usually formed instantly and wordlessly. Breakaway “contract formation” is spontaneous, tentative, and uncertain. The “offerors” must expend significant “search costs,” little busts of energy as riders jump away and invite other riders to join them, often to be disappointed when they don’t. But if it appears that two or three strong riders will succeed, other strong riders (who have been waiting for the opportunity)  will “jump across” to join them and make the group stronger still.

The trick is thus for a select group of strong riders to find each other, to sort themselves out, to winnow out weaker riders, and to work thereafter at maximum effort for a few kilometers to gain an advantage over the rest.

The chief sin in a breakaway is shirking. Each rider must take his turn at the front and not coast along at the rear, literally free-riding on the labors of others. Sometimes the group is joined by an uninvited, parasitic rider, who takes no turns at the front because he is working in the interests of a rider back in the peloton who wants the breakaway to fail or, if it succeeds, for the parasite to capture the win.

But the dynamics of the race make shirking a constant temptation. Each rider is trying to hold something back, even at risk of slowing the group, in order to have a bit more energy left for the final sprint when he can defeat those who spent more of their energy working for the group. Blatant shirking is usually detected and chastised by the other riders, but there is little sanction they can impose.

The alliance often lasts until the final mile, when the breakaway group has a lead that assures them that one of them will be the winner. Then, however, something surprising happens: the alliance is suddenly broken, with each rider trying to move ahead of the others. “All for one and one for all” becomes “Every man for himself.” At this point, drafting is no longer a gift bestowed by the leader on the others but a burden assumed by the hapless rider who is forced to ride in front only to be jumped from behind at the finish.

The moment when the alliance breaks, when the riders move from cooperation to competition, is always uncertain but everyone knows that it is inevitable. Sometimes, when the peloton is pressing near the end of the race, the breakaway riders must calculate carefully how long to work together (necessary to ensure that they will not all be run down) before the group explodes as each breakaway rider seeks individual victory. In this critical interval, each breakaway rider must decide “Am I strong enough to go it alone from this point forward, or should I remain with the group a little longer?”

This ethical implications of this cycle from tentative agreement to trust to inevitable betrayal is understood and accepted by everyone. For a member of a breakaway to breach its tacit contract by jumping into the lead before his allies-of-the-moment is no real betrayal and is never blameworthy, because breakaway contracts are created to be faithfully performed and then to be ruthlessly broken.

 Does the parable of the peloton suggest anything about commercial contract law and its norms?