As it's a fair deal, you sign it and send it to the merchant.
Now the merchant is compensated and grants you the 10ct. service.
Now you feel betrayed by the merchant and publish the very first full reimbursement but the merchant has time until the timeout of A expires to publish any lower reimbursement that you signed and that overrules all prior Bs.
Because bitcoin is a non refundable transaction there is still a question of trust. If there is no escrow between you and the merchant then which transaction takes place first. In your case the merchant is paid before he grants you the 10c service. Or should he grant you the service before he is paid the 10c?
It probably won't be an issue in reality because the transactions are small and somebody will be willing to take the first step.
Exactly. For the 10ct. you need trust and always will need trust for things you can't pack into the blockchain.
Imagine you buy some digital good. The merchant could send you the encrypted version and forge a transaction that would only be valid if it contained the key for your copy of the digital good. You sign the transaction, granting the merchant the price. Now the merchant could either sign it, too, granting you access to the blob of data he claimed was the digital good, or not sign. At least in this scenario you are damn close to having proof that the merchant did not deliver. I doubt that it's theoretically possible to get much closer to trust-free than that.
(Well, colored bitcoins would be an example though. If there is a legally binding contract that states that this car belongs to whoever controls this satoshi, you could pass ownership of this satoshi and a payment for it in one transaction both parties sign and publish. Maybe this is still a bit esoteric.)
It's all about levels of trust. The micro payment system reduces this. It doesn't matter about legally binding contracts because people will still rip you off. Credit card companies calculate how much they will be taken from them each year by people they have entered in to legally binding contracts with and calculate their interest rates so that they still profit. Put your money in a bank account or a government bond or coloured coin guarantor that you trust and you can still lose.
No system is perfect but reducing the level of trust required is very efficient because with trust there is also reputation and even on the Internet this can count for something, even if it's just the hassle of opening a new account with a new e-mail. So if you reduce the level of trust sufficiently it can be counter acted by the loss of reputation.
I like the idea of micro escrow where the escrow agent only holds a small amount from each exchange participant and the exchanges happen in increments. This can be automated and the level of trust is reduced between everybody.