Free Offers: A New Look

Abstract

Free offers - the practice wherein firms market goods and services by claiming that they are free - have been overlooked for too long from a structural regulatory perspective. These offers have become so ingrained into our consumer culture that they often go unnoticed, viewed as part of the natural commercial landscape. The courts and the FTC have effectively left free offer regulation untouched since the 1950s. Even legal scholarship has largely ignored free offers. I argue that advances in the study of human behavior require a new look and a new approach to the half-century-old free offer regulatory regime.

A truly free offer would be a gift. In contrast, a free offer attached to another definite commercial commitment is not free under our common understanding of the word. Under the legal standard, however, the use of the word free is lawful, provided there is adequate disclosure of the attached commercial commitment.

Free offers can be perceived as merely harmless exaggerations or simple puffery. In fact, why wouldn't consumers want free goods and services? Rational consumers should want truly free goods and services. However, free offers subvert rationality. Cognitive psychology and reciprocity theory demonstrate that the power of a free offer induces consumers to behave differently, making them more likely to engage in certain transactions. The powerful expressive function of the word free tactically puts consumers at a disadvantage even in the situations where the conditions of our laws and regulations are satisfied.

I argue that current law and regulations require wholesale reevaluation, especially given the date of their original formation and the advances in our understanding of human behavior. This ubiquitous practice should be reexamined. Moreover, policymakers should go even as far as banning the practice of the free offer in certain contexts and seeking other appropriate means to even the playing field.

Keywords: commercial, free, cognitive, psychology, reciprocity, consumer, marketing, advertising

JEL Classification: D18