ARTICLE REVIEW

Article Review



Article Review

Introduction

Typically, competition aligns the interests of producers with those of consumers. Consumers want higher quality and less costly products, and producers have an incentive to provide them because, if they do not, their rivals will. However, this alignment can break down in a variety of circumstances. For example, if consumers lack information about quality or price, they can end up purchasing products they would not have otherwise wanted. If there are enough uninformed consumers, producers may have the incentive to set prices that are too high or quality that is too low. This paper presents the review of the article mentioned in the list of references.

Article Review

In the context of my reading of the article I will say that consumer protection laws and regulations are designed to realign the incentives of producers with the goals of consumers by preventing certain kinds of firm behavior, like deceptive advertising, and by mandating others, like information disclosures. However, these regulations also raise costs, so assessing whether consumers are better off under these regulations requires careful benefit-cost analysis.

For example, in 2005 the European Commission required that airlines compensate passengers in the event of canceled flights, regardless of the cause. So when airlines sell tickets, they must bundle what amounts to trip insurance with the tickets. Consumers are better off if the price of airline tickets goes up by less than the value that consumers place on the trip insurance. But if some consumers value trip insurance while others do not, then unbundling tickets from insurance may be a better solution, as it allows those consumers who do not value the flight insurance to purchase tickets without it. Finally, there is the consideration of safety. If airlines were forced to pay more for canceled flights, one would expect to see more flights in bad weather, with a corresponding decrease in safety. Balancing all of these considerations is necessary to determine whether the regulation helps or hurts consumers (Braithwaite, Sieff, 2010).

Consumer protection agencies want to enforce regulations and laws where there is the biggest net benefit, and this has led them to focus most of their enforcement resources on prosecuting deception. If sellers misrepresent their products or services, mislead consumers about the terms of the bargain, or unilaterally try to change those terms post-purchase, then transactions can occur that reduce welfare. Such behavior is most likely where products are infrequently purchased, where claimed characteristics of the product are not verifiable by consumers or rival sellers at low cost, where seller reputations are unimportant for profitable sales, or where buyers are particularly vulnerable or gullible. Governments focus much of their consumer protection efforts on such markets. In this role, government can act as an efficient agent for the mass of consumers who might have suffered injury, but do not pursue individual legal remedies because of the cost. Governments attempt to obtain remedies that will correct the wrong, and also efficiently deter future violations by the offending firm (called specific deterrence) and others (called general ...