The Tethered Economy

Abstract

Imagine a future in which every purchase decision is as complex as choosing a mobile phone. What will ongoing service cost? Is it compatible with other devices you use? Can you move data and applications across devices? Can you switch providers? These are just some of the questions one must consider when a product is “tethered” or persistently linked to the seller. The Internet of Things, but more broadly, consumer products with embedded software, are already tethered.

While tethered products bring the benefits of connection, they also carry its pathologies. As sellers blend hardware and software—as well as product and service—tethers yoke the consumer to a continuous post-transaction relationship with the seller. The consequences of that dynamic will be felt both at the level of individual consumer harms and on the scale of broader, economy-wide effects These consumer and market-level harms, while distinct, reinforce and amplify one another in troubling ways.

Seller contracts have long sought to shape consumers’ legal rights. But in a tethered environment, these rights may become non-existent as legal processes are replaced with automated technological enforcement. In such an environment, the consumer-seller relationship becomes extractive, more akin to consumers captive in an amusement park than to a competitive marketplace in which many sellers strive to offer the best product for the lowest price.

At the highest level, consumer protection law is concerned with promoting functioning free markets and insulating consumers from harms stemming from information asymmetries. We conclude by exploring legal options to reduce the pathologies of the tethered economy.

Keywords: tethering, internet of things, drm, consumer protection, competition