Competition and Consumer Protection: A Behavioral Economics Account

SWEDISH COMPETITION AUTHORITY, THE PROS AND CONS OF CONSUMER PROTECTION, Forthcoming

NYU Law and Economics Research Paper No. 11-42

27 Pages Posted: 21 Dec 2011  

Oren Bar-Gill

Harvard Law School

Date Written: December 19, 2011

Abstract

Do the benefits of competition extend to a world with imperfectly rational consumers? I argue that sellers, operating in a competitive market, will design their products, contracts and pricing schemes in response to consumer misconception, resulting in both efficiency losses and harm to consumers. Under certain conditions, competition provides incentives for sellers to educate consumers and reduce misconception, but these mistake-correction forces are limited. The existence of biased demand, generated by imperfectly rational consumers, creates a market failure – a behavioral market failure. Mandated disclosure, deliberately designed for imperfectly rational consumers, or for sophisticated intermediaries that advise imperfectly rational consumers, can help.

Suggested Citation

Bar-Gill, Oren, Competition and Consumer Protection: A Behavioral Economics Account (December 19, 2011). SWEDISH COMPETITION AUTHORITY, THE PROS AND CONS OF CONSUMER PROTECTION, Forthcoming ; NYU Law and Economics Research Paper No. 11-42. Available at SSRN: https://ssrn.com/abstract=1974499

Oren Bar-Gill (Contact Author)

Harvard Law School ( email )

1575 Massachusetts
Hauser 406
Cambridge, MA 02138
United States

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