publication . Article . 2008

Consumer Protection and Behavioral Economics: To BE or Not to BE?

Howard Beales;
Open Access
  • Published: 01 Jan 2008 Journal: CPI Journal CPI 4(1), volume 4
Abstract
The foundation of consumer protection policy is respect for consumer choice. Modern consumer protection recognizes the need to preserve information markets and to carefully structure interventions to ensure compatibility with how consumers actually process information.
39 references, page 1 of 3

2 U.S. Federal Trade Commission, Conference on Behavioral Economics and Consumer Policy, Washington, DC (Apr. 20, 2007), at http://www.ftc.gov/be/consumerbehavior/index.shtml (last visited Feb. 19, 2008).

4 C.R. Sunstein & R.H. Thaler, Libertarian Paternalism is Not and Oxymoron, 70 U. CHI. L. REV. 1159 (2003).

5 O. Bar-Gill, Seduction by Plastic, 98 NW. U. L. REV. 1373 (2004).

10 B. Klein & K. B. Leffler, The Role of Market Forces in Assuring Contractual Performance, 89 J. POL. ECON. 615 (1981).

11 Unfolding occurs if consumers assume that absent disclosure, a product is worse on the characteristic than products that disclose. See S. Grossman, The Informational Role of Warranties and Private Disclosure About Product Quality, 24 J.L. & ECON. 461 (1981); and P. Rubin, The Economics of Regulating Deception, 10(3) CATO J. 667 (1991).

12 A. Schwartz & L.L. Wilde, Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis, 127 U. PA. L. REV. 630 (1979).

13 For evidence addressing shopping for standardized franchise contracts, see J.H. Beales & T.J. Muris, The Foundations of Franchise Regulation: Issues and Evidence, 2 J. CORP. FIN.: CONTRACTING, ORGANIZATION & GOVERNANCE 157 (1995). For evidence of shopping for personal loan terms, see J.R. Barth, J.J. Cordes, A.M.J. Yezer, Benefits and Costs of Legal Restrictions on Personal Loan Markets, 29 J.L. & ECON. 157 (1986).

14 The first study finding that advertising reduced price was L. Benham, The Effect of Advertising on the Price of Eyeglasses, 15 J.L. & ECON. 337 (1972). For evidence of the impact of health claims on the market, see P.M. Ippolito & A.D. Mathios, Information, Advertising and Health Choices: A Study of the Cereal Market, 21 RAND J. ECON. 459 (1990). Other studies of both price and quality benefits of seller-provided information are identified in J. HOWARD BEALES & TIMOTHY J. MURIS, STATE & FEDERAL REGULATION OF NATIONAL ADVERTISING ch. 2 (1993).

15 For broadcast advertising, see J. JACOBY, W. D. HOYER & D. A. SHELUGA, MISCOMPREHENSION OF TELEVISED COMMUNICATIONS (Am. Ass'n Advertising Agencies, Nov. 1980). See also 46 J. MARKETING 12-43 (1982) for a summary of the study, critical comments on its validity, and a rejoinder. For print advertising, see J. Jacoby & W. D. Hoyer, The Comprehension/Miscomprehension of Print Communication: Selected Findings, 15 J. CONSUMER RES. 434 (1989).

16 The Commission formally abandoned the so-called “fools test” when it adopted the Deception Policy Statement in 1983. The emergence of the FTC's modern approach to advertising regulation is discussed in detail in Beales & Muris (1993), supra note 14.

17 For a brief description of the FTC's analytical approach, see Pauline Ippolito, Consumer Policy at the FTC, Presentation at the FTC Conference on Behavioral Economics and Consumer Policy, Washington, DC (Apr. 20, 2007), available at http://www.ftc.gov/be/consumerbehavior/docs/transcript/transcriptc.pdf.

18 See, e.g., C.S. Craig, B. Sternthal & C. Leavitt, Advertising Wearout: An Experimental Analysis, 13 J. MARKETING RES. 365 (1976); A.J. Rethans, J.L. Swasy & L.J. Marks, Effects of Television Commercial Repetition, Receiver Knowledge, and Commercial Length: A Test of the Two-factor Model, 23 J. MARKETING RES. 50 (1986).

19 See the discussion in J.P. Mulholland, Summary Report on the FTC Behavioral Economics Conference 25 (2007) (mimeo) (on file with the FTC), at http://www.ftc.gov/be/consumerbehavior/docs/ 070914mulhollandrpt.pdf [hereinafter Mulholland Summary]. See also J. Rudd, The Consumer Information Overload Controversy and Public Policy, 2 POL'Y STUD. REV. 465 (1983).

20 H. Beales, R. Craswell & S.C. Salop, The Efficient Regulation of Consumer Information, 24 J.L. & ECON. 491 (1981).

21 J. Lacko & J. Pappalardo, The Effect of Mortgage Broker Compensation Disclosures on Consumers and Competition: A Controlled Experiment, FTC BUREAU OF ECONOMICS STAFF REPORT (2004), available at http://www.ftc.gov/os/2004/01/030123mortgagefullrpt.pdf.

39 references, page 1 of 3
Abstract
The foundation of consumer protection policy is respect for consumer choice. Modern consumer protection recognizes the need to preserve information markets and to carefully structure interventions to ensure compatibility with how consumers actually process information.
39 references, page 1 of 3

2 U.S. Federal Trade Commission, Conference on Behavioral Economics and Consumer Policy, Washington, DC (Apr. 20, 2007), at http://www.ftc.gov/be/consumerbehavior/index.shtml (last visited Feb. 19, 2008).

4 C.R. Sunstein & R.H. Thaler, Libertarian Paternalism is Not and Oxymoron, 70 U. CHI. L. REV. 1159 (2003).

5 O. Bar-Gill, Seduction by Plastic, 98 NW. U. L. REV. 1373 (2004).

10 B. Klein & K. B. Leffler, The Role of Market Forces in Assuring Contractual Performance, 89 J. POL. ECON. 615 (1981).

11 Unfolding occurs if consumers assume that absent disclosure, a product is worse on the characteristic than products that disclose. See S. Grossman, The Informational Role of Warranties and Private Disclosure About Product Quality, 24 J.L. & ECON. 461 (1981); and P. Rubin, The Economics of Regulating Deception, 10(3) CATO J. 667 (1991).

12 A. Schwartz & L.L. Wilde, Intervening in Markets on the Basis of Imperfect Information: A Legal and Economic Analysis, 127 U. PA. L. REV. 630 (1979).

13 For evidence addressing shopping for standardized franchise contracts, see J.H. Beales & T.J. Muris, The Foundations of Franchise Regulation: Issues and Evidence, 2 J. CORP. FIN.: CONTRACTING, ORGANIZATION & GOVERNANCE 157 (1995). For evidence of shopping for personal loan terms, see J.R. Barth, J.J. Cordes, A.M.J. Yezer, Benefits and Costs of Legal Restrictions on Personal Loan Markets, 29 J.L. & ECON. 157 (1986).

14 The first study finding that advertising reduced price was L. Benham, The Effect of Advertising on the Price of Eyeglasses, 15 J.L. & ECON. 337 (1972). For evidence of the impact of health claims on the market, see P.M. Ippolito & A.D. Mathios, Information, Advertising and Health Choices: A Study of the Cereal Market, 21 RAND J. ECON. 459 (1990). Other studies of both price and quality benefits of seller-provided information are identified in J. HOWARD BEALES & TIMOTHY J. MURIS, STATE & FEDERAL REGULATION OF NATIONAL ADVERTISING ch. 2 (1993).

15 For broadcast advertising, see J. JACOBY, W. D. HOYER & D. A. SHELUGA, MISCOMPREHENSION OF TELEVISED COMMUNICATIONS (Am. Ass'n Advertising Agencies, Nov. 1980). See also 46 J. MARKETING 12-43 (1982) for a summary of the study, critical comments on its validity, and a rejoinder. For print advertising, see J. Jacoby & W. D. Hoyer, The Comprehension/Miscomprehension of Print Communication: Selected Findings, 15 J. CONSUMER RES. 434 (1989).

16 The Commission formally abandoned the so-called “fools test” when it adopted the Deception Policy Statement in 1983. The emergence of the FTC's modern approach to advertising regulation is discussed in detail in Beales & Muris (1993), supra note 14.

17 For a brief description of the FTC's analytical approach, see Pauline Ippolito, Consumer Policy at the FTC, Presentation at the FTC Conference on Behavioral Economics and Consumer Policy, Washington, DC (Apr. 20, 2007), available at http://www.ftc.gov/be/consumerbehavior/docs/transcript/transcriptc.pdf.

18 See, e.g., C.S. Craig, B. Sternthal & C. Leavitt, Advertising Wearout: An Experimental Analysis, 13 J. MARKETING RES. 365 (1976); A.J. Rethans, J.L. Swasy & L.J. Marks, Effects of Television Commercial Repetition, Receiver Knowledge, and Commercial Length: A Test of the Two-factor Model, 23 J. MARKETING RES. 50 (1986).

19 See the discussion in J.P. Mulholland, Summary Report on the FTC Behavioral Economics Conference 25 (2007) (mimeo) (on file with the FTC), at http://www.ftc.gov/be/consumerbehavior/docs/ 070914mulhollandrpt.pdf [hereinafter Mulholland Summary]. See also J. Rudd, The Consumer Information Overload Controversy and Public Policy, 2 POL'Y STUD. REV. 465 (1983).

20 H. Beales, R. Craswell & S.C. Salop, The Efficient Regulation of Consumer Information, 24 J.L. & ECON. 491 (1981).

21 J. Lacko & J. Pappalardo, The Effect of Mortgage Broker Compensation Disclosures on Consumers and Competition: A Controlled Experiment, FTC BUREAU OF ECONOMICS STAFF REPORT (2004), available at http://www.ftc.gov/os/2004/01/030123mortgagefullrpt.pdf.

39 references, page 1 of 3
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