Minding the Gap

Abstract

Online and offline, relations between consumers and businesses are most frequently governed by consumer standard form contracts. For decades such contracts have been assumed to be one-sidedly biased against consumers. Consumer law seeks to alleviate this bias and empower consumers. Legislatures, consumer organizations, scholars and judges constantly look for ways to protect consumers from unscrupulous firms and unfair behaviors.

While consumers-businesses relations are assumedly administered by standardized contracts, firms do not always follow these contracts in practice. Sometimes there is significant disparity between what the written contract stipulates and what consumers experience de facto. Interestingly, firms often deviate from the written contract in favor of consumers, thus creating a gap (“the Gap”). In other words, firms often take a lenient approach despite the stringent written contracts they draft. This article examines whether, counter-intuitively, policy makers should add firms’ leniency to the growing list of firms’ suspicious behaviors.

The article proposes that firms’ lenient approach, coupled with online tools and human psychology, may occasionally have surprising and harmful qualities. It illustrates how technological changes can turn the Gap into a key component in consumers' understanding, or perhaps misunderstanding, of consumer contracts. It examines when firms’ leniency should be considered manipulative or exercised in bad faith. It then explores whether firms should be allowed to enforce the written contract even if they deliberately and consistently deviate from it.

The main contribution of this article is threefold: First, it points to the Gap and examines its foundations and origins. Second, it illustrates how the Gap complicates the interplay between reputation, conduct, trust and the need to protect consumers. By doing so, it demonstrates that the prevailing view concerning the Gap is seriously incomplete. While it is generally believed that the Gap is harmless or even desirable, we show that it might have serious adverse effects. The article asserts that, at the end of the day, the Gap may blend into a toxic mix that distorts consumers’ perception and undermine rational decision-making. Third, it identifies key questions policy makers and courts should consider in respect of this said Gap.

Keywords: Consumer contracts, Online Information Flow, Feedback and Ranking Mechanisms, Firms' Behavior, Trust, Information Asymmetry

JEL Classification: K00, K10, K12, K19, K20, K29, K30, K39, K40, K49