Towards a New Model of Consumer Protection: The Problem of Inflated Transaction Costs

Jeff Sovern
2005 Social Science Research Network  
Contrary to the predictions of conventional economic theory, firms often benefit by increasing consumer transaction costs. Firms do so by, for example, obscuring contract terms in a variety of ways, such as providing them after the contract is agreed to, enclosing them with other more interesting information, using small print, and omitting important terms such as arbitration fees from the written contract. Firms also benefit by taking advantage of predictable consumer behaviors, such as the
more » ... dency of consumers not to seek rebates, to overload when provided with too much information, and to ignore dull information when overshadowed by vivid information. Using behavioral law and economics, this Article provides examples ofpractices that inflate consumer transaction costs, explains why firms benefit from such practices, and describes the conditions giving rise to such practices. This Article also explains why inflated consumer transaction costs are objectionable and explores the law's response to the problem. Finally, the Article argues that lawmakers should adopt a norm barring the unnecessary inflation of consumer transaction costs and describes tests that lawmakers can employ to implement such a norm.
doi:10.2139/ssrn.648052 fatcat:x5i34p4b7nd2zcdkrylofqcpjm