Interactions between competition and consumer policy

Today the OFT published a paper on the interactions between competition and consumer policy (written by Mark Armstrong (?)). See here. The GVH, the national competition authority in Hungary, is also responsible for enforcing consumer deception prohibitions.

The paper might be of interest for those who litigate consumer deception cases before the courts. Some parts about over enforcement:

“… the FTC often took a very expansive view of which adverts were misleading, and this was used to protect incumbent firms from new entrants. The problem was that an advert could be ruled as misleading even when it deceived only the ‘ignorant, unthinking, and credulous’, which in practice could include many adverts.”

“In Chapter 3, I argued that consumer policies should facilitate advertising, since advertising might be a valuable channel through which consumers obtain information about prices and product attributes in the market. Therefore, it is ironic that in the past (as illustrated in the previous quote), consumer policies often acted to restrict advertising.”

“Other highly contentious consumer policies are those that act to restrict the choices available in the market. The reason for this is that such policies harm those consumers who vigorously defend their interests, even if they sometimes help the more vulnerable consumers.”

“A frequent way in which consumer policies can restrict choice is by imposing stringent minimum quality standards on a market. Of course, if quality is not observed by consumers, if reputational concerns are not effective, and if information remedies are not feasible, then it may be sensible to impose minimum standards. But the situation is rarely that bad.”

And some parts for those who are involved in the highly disputed credit card cases.

“But other cases are much less clear-cut, such as the credit card penalty charges discussed shortly. In such cases, the information needed to be confident that the benefits of banning a particular product outweigh the losses is hard for a consumer body to find. In these situations, the consumer body should investigate carefully whether there is an information remedy that might do almost as well at protecting the inattentive consumers without restricting choice.” 

 “Consider in more detail the case of late payment charges on credit cards. As an alternative (or in addition) to an informational remedy, such as making these charges more prominent when the consumer signs the contract, one could directly control the level of such a charge. Set against the beneficial impact on those consumers who end up paying the charge and did not realize it applied to them, there are at least five drawbacks to such a policy. First, as discussed in Chapter 3 Section D, the impact will likely be to harm the careful consumers who do always pay on time, and so the benefit in terms of aggregate consumer welfare is unlikely to be great. Second, there may be consumers who actively want to have this particular charging structure. For instance, a consumer who is aware that he suffers from self-control problems might like the extra discipline that high penalty charges bring, so that the high charge acts as a commitment device. …

The third problem is that a credit card supplier might legitimately wish to deter adoption of its product by less credit-worthy consumers, and may use a high charge for late payment as a means of doing so. 

Fourth, as a practical matter it may be very resource intensive for a consumer body to have to determine permitted price levels in the small print of contracts. Generally, one does not want a consumer or competition body to need to have a detailed knowledge of the many industries it oversees. Unless it is completely arbitrary, in order to calculate the basis for a ‘fair’ small-print charge, the authority will have to investigate detailed costs incurred by many firms on an ongoing basis, which will be resourceintensive for both the authority and the industry. Finally, the fifth reason for caution is that such a policy may be the thin end of the wedge. If policy to control the level of small-print or add-on charges is deemed appropriate in this instance, why not in other markets such as: hotel phone charges; printer ink cartridges; extended warranties on electrical goods; charges for going beyond one’s monthly allowance for mobile phone calls; the hypothetical expensive butter in the supermarket in Chapter 2; and so forth?” And so on and so forth.

Worth to read!

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