How to Economize Consumer Protection

15 Pages Posted: 14 Mar 2018 Last revised: 8 May 2018

See all articles by Michael R. Baye

Michael R. Baye

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Joshua D. Wright

George Mason University - Antonin Scalia Law School, Faculty

Date Written: March 9, 2018

Abstract

The U.S. antitrust laws are about protecting consumers from harm stemming from abuses of competition and the competitive process. Courts, private parties, and federal agencies extensively rely upon economists to help evaluate the merits of, and potential harm from, alleged violations of the Clayton Act, the Sherman Act and, more generally, business practices that are alleged to run afoul of antitrust law. These analyses often involve statistical and econometric techniques that facilitate decision-making based on scientific evidence of likely harm to competition or consumers. But in contrast, the typical approach to a consumer protection matter relies upon a combination of surveys and subjective opinions to establish the facts relevant to a consumer protection dispute.

We show how economics can be used in consumer protection matters to help prove or disprove a claim that a business practice adversely impacted consumers, and to shed light on the economic merits of litigating versus settling cases. In our experience, many seemingly benign consumer protection settlements induce asymmetries in the marketplace that put the settling firm at a competitive disadvantage. Regardless of whether one’s goal is to protect consumers or defend one’s client, doing so requires accounting for these effects. More broadly, economics provides tools which, when properly utilized, can help improve the allocation of scarce resources — at agencies and beyond — to better serve and protect consumers and competition.

Keywords: Federal Trade Commission, economics, consumer protection, privacy, data security, deception, unfairness, Consumer Financial Protection Bureau

JEL Classification: K21, K22, L51

Suggested Citation

Baye, Michael Roy and Wright, Joshua D., How to Economize Consumer Protection (March 9, 2018). Antitrust Source, February 2018; Kelley School of Business Research Paper No. 18-20; George Mason Law & Economics Research Paper No. 18-11. Available at SSRN: https://ssrn.com/abstract=3137122

Michael Roy Baye

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States
812-855-2779 (Phone)
812-855-3354 (Fax)

Joshua D. Wright (Contact Author)

George Mason University - Antonin Scalia Law School, Faculty ( email )

3301 Fairfax Drive
Arlington, VA 22201
United States

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