A Coasean Analysis of Marketing

71 Pages Posted: 7 Jul 2006

See all articles by Eric Goldman

Eric Goldman

Santa Clara University - School of Law


Consumers claim to hate marketing - mostly, because they get too much unwanted marketing. In response, regulators develop medium-by-medium marketing suppression regulations. Unfortunately, these ad hoc solutions do little to satisfy consumers, and dynamic technologies and business practices quickly render them moot. Instead of continuing this cycle, there would be some benefit to developing a cross-media marketing regulatory scheme.

However, any holistic solution must be predicated on a clear rationale for regulating marketing. The most common justification is that marketing imposes a negative externality on consumers, but this argument ignores the private and social welfare created by marketing and can lead to cost overinternalization and marketing undersupply.

The Coase Theorem also suggests that social welfare improves by reducing the costs of matching marketers with interested consumers. To achieve this, consumers need a low cost but accurate mechanism to manifest their preferences. This Article shows that typical regulatory and marketplace solutions do not provide effective mechanisms.

Instead, marketer-consumer matchmaking will improve from technology that will automatically infer consumer preferences and use these inferences to filter incoming marketing and seek out wanted content. This technology is rapidly emerging, but regulation of surreptitious monitoring devices (like adware and spyware) may inadvertently block the development of this socially-beneficial technology. As a result, current regulatory overreactions to developing technology may counterproductively foreclose social welfare improvements.

Keywords: Coase Theorem, marketing, advertising, spam, telemarketing, junk mail, direct mail, email marketing, cost shifting, infomediaries, adware, spyware

JEL Classification: D1, D18, D23, D61, D62, D8, D82, D83, K2, L15, L5

Suggested Citation

Goldman, Eric, A Coasean Analysis of Marketing. Santa Clara Univ. Legal Studies Research Paper No. 06-03, Marquette Law School Legal Studies Paper No. 06-26, Wisconsin Law Review, 2006, Available at SSRN: https://ssrn.com/abstract=912524

Eric Goldman (Contact Author)

Santa Clara University - School of Law ( email )

500 El Camino Real
Santa Clara, CA 95053
United States
408-554-4369 (Phone)

HOME PAGE: http://www.ericgoldman.org

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