Consumer Voice and Optimal Firm Size

Abstract

This Article examines the question: How can a consumer hold a seller to account in an exchange relationship when expectations have not been met. The Article’s first contribution is to recognize that, in the case of small firms, an employer business can provide a higher level of conflict resolution compared to a non-employer business. Unlike a consumer, an employer has the level of control necessary to compel an employee to remedy a product or service failure. Rather than engage in a costly personal confrontation with an employee, a dissatisfied consumer can simply request that the employer make the employee perform as promised. In this way, the existence of an employer-employee relationship allows a dissatisfied consumer to transfer or otherwise delegate conflict resolution to a person with greater power to remedy a product or service failure.

The Article’s second contribution is to recognize that, in the case of large firms operating in markets with imperfect competition, a large firm is likely to provide a suboptimal level of conflict resolution. When consumers are locked into an exchange relationship because switching costs are sufficiently high due to a lack of available market alternatives, consumers often have limited voice and no other feasible dissatisfaction response—a state of powerlessness that this Article terms “consumer captivity.” This Article argues that antitrust authorities ought to include consumer captivity more consistently in the mix of non-price consumer harms cognizable under U.S. antitrust law. To increase the level of conflict resolution of large firms in imperfect markets, this Article identifies two potential regulatory strategies informed by the analytic framework: (1) indirectly reduce the cost of consumer voice, and (2) directly increase the probability that a dissatisfied consumer receives a compensatory remedy.

Keywords: Consumer Voice, Agency Law, Consumer Complaining Behavior, Antitrust Law, Consumer Harm

JEL Classification: D20, K21, L22