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From Strünck, C., 2015. Consumer Policy. In: James D. Wright (editor-in-chief),
International Encyclopedia of the Social & Behavioral Sciences, 2nd edition, Vol
4. Oxford: Elsevier. pp. 733–737.
ISBN: 9780080970868
Copyright © 2015 Elsevier Ltd. unless otherwise stated. All rights reserved.
Elsevier
Author's personal copy
Consumer Policy
Christoph Stru
¨nck, School of Arts and Humanities, University of Siegen, Siegen, Germany
Ó2015 Elsevier Ltd. All rights reserved.
Abstract
Consumer policy aims at protecting and empowering consumers. Consumers are a very large group but they suffer problems
of collective actions. This is why governments, consumer organizations, and companies apply tools such as bans, regulations,
advice, litigation, or self-regulatory standards. Relations between companies and consumers are asymmetrical, with
consumers lacking vital information. Additionally, behavioral economics reveal striking biases: habits, norms, and irrational
attitudes shape everyday consumption. Governance of consumer policy is different, however, resting on different ideas and
ideologies, as comparative politics shows. Complex digital markets, the service industry, and the quest for sustainable
consumption are core challenges to consumer policy.
Introduction
Companies need consumers to sell. Consumers need compa-
nies to deliver. The relation between companies and consumers
is not as adversarial as between employers and employees.
Neoclassic economics holds that markets will provide whatever
individual consumers long for: good quality, low prices, and
choice at every level. Why consumer policy, then?
Consumers stand on the weak side of an asymmetric rela-
tionship. Struggling with information overload and short on
time, comparing products is messy. Lots of information biases
as well as behavioral biases shape consumption. This is why
collective action of consumers is necessary to maintain effective
markets. Supposing, mass of consumers buy products with
minor flaws. No single consumer will take up efforts to
complain or even to sue. This collective behavior leads to
economic inefficiency. More fundamentally, people expect
governments to safeguard against dangerous products and
hazards. Last but not least, consumers also bear political
responsibility because buying comes with price tags for others.
This is why collective action is necessary.
Consumers are among the largest social groups in society,
spanning all categories of social status, gender, age, and cultural
attitudes. Consumption is both the basic need and symbol of
expression. To consume is not only to buy a good, but also the
way consumers use and recycle those goods is at least as
important as purchase. Consumption is both individual choice
and social behavior, it is deeply rooted in group thinking,
norms, and tradition, and it is mostly embedded in house-
holds. Yet, consumers are not as well organized as employees,
professions, or business groups. Their collective action prob-
lems exceed those of most other groups.
Consumers are a large and heterogeneous group that suffers
a fundamental dilemma of free riding. Consumers neatly fitin
what Mancur Olson called ‘diffuse and weak interests’(Olson,
2003): nobody is willing to join collective action because
everyone will benefit from it. This is why governments often
support and subsidize consumer organizations, especially in
Europe. In the United States, foundations and public interest
law firms act as political entrepreneurs.
Additionally, governments act on behalf of consumers:
they ban dangerous products, they enact safety and quality
standards, and they regulate markets to protect consumers.
Consumer policy cuts across different realms. As for the United
States, agencies such as the Federal Trade Commission, the
Environmental Protection Agency, or the Food and Drug
Administration are in charge.
Consumer policy is not just government action and
collective action of consumer groups. Companies pursue
consumer policy, too. A classic example is self-regulation. In
most advanced economies, there are self-regulatory bodies of
industry. They monitor markets and blame competitors for
wrongful practices.
Summed up, consumer policy aims at protecting consumers
and empowering them to make informed choices. Govern-
ments, associations, and companies carry out consumer policy.
Policy tools include bans, standards, obligations, education,
information, and litigation. Consumer policy is mainly regu-
latory policy; it is less distributive or redistributive. Thus, costs
and benefits are usually spread quite evenly. You might expect
consumer policy to be a cherished subject for politicians, then.
However, consumer policy has to cope with a classic
dilemma of cross-cutting policies (Stone, 2012). Most policies
have clear boundaries in which government, business, and
interest groups are separated from other constituencies. This is
the case with social policy, environmental policy, or agricul-
tural policy. With consumer policy, things are different.
Consumer issues cut across a whole range of policies. On the
one hand, regulatory capture is less likely because there is no
‘iron triangle’of vested interests. On the other hand, compre-
hensive policies are less likely, too. Additionally, when costs are
spread evenly it might provoke resistance from all sectors of
business. Thus, similar to redistributive policies, consumer
policy is shaped by conflicts and ideologies.
Are Consumers Rational: Ideas and Ideologies
in Consumer Policy
Every policy faces cleavages that affect collective interests. As for
consumer policy, it comes with a price tag for companies. They
might have to disclose information on products and yield
certain rights to consumers. Lawmakers argue that rules apply
to everybody in order to maintain fair competition. Business
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groups argue that consumers are sovereign to decide on their
own. However, business groups are split over goals and
instruments of consumer policy. Companies with high quality
standards even support stronger rules to single out lemons.
Yet, the core conflict is about rational consumption. Do
consumers act rationally; do they bear full responsibility for
what they are doing? The paradigm of rational consumers is
rooted in neoclassic economics. Equivalent to perfect markets,
consumers are well informed and sovereign. However, insti-
tutional economics has hinted that transaction costs for
consumers can be high. Additionally, institutional economics
highlight asymmetrical relations between companies and
consumers, as the famous ‘market for lemons’by Akerlof has
shown (Akerlof, 1970): buyers of used cars cannot correctly
asses the quality of what they are buying. This problem
systematically undermines effectiveness of markets. Only
institutional rules can guarantee that consumers benefit from
markets whose products they cannot compare as easily as
textbook wisdom suggests.
Institutional economics paved the way for the ‘information
approach’: consumer policy has to provide special information
to make up for disadvantages of consumers. More recently,
behavioral economics has cast doubt on the ‘information
approach.’Experiments show that framing, anchor effects, and
habits shape consumption predominantly. Most consumers
lack time and knowledge to compare, being stuck in routines
and habits. Rational ‘choice’is rare; often it is impossible
(Albanese, 2006;Hantula, 2012). There are even effects of
information overload that confuse consumers.
Additionally, there is no such thing as the average
consumer. Social science has detected different types: confident
consumers, responsible consumers, and vulnerable consumers
(Gronow and Warde, 2001). Instruments and strategies of
consumer policy need to be tailored to the needs of different
forms of behavior.
These findings undermine conventional arguments on
consumption. They also fuel ideological struggles in consumer
policy. Should consumer policy just provide information or
should it guide consumers? Does soft paternalism clash with
individual choice and free markets? Should consumer policy
focus on individual consumers or should it support group
action? Is the general notion of ‘consumers’in line with
complex and heterogeneous societies?
Conflicts about ideas and ideologies have unfolded in
different countries, embedding different approaches toward
consumer policy. Ideas and ideologies not only include
assumptions about consumers but also stretch to regulatory
devices like the much debated precautionary principle.
Convergence or Divergence: Governance of Consumer
Policy in Advanced Economies
For a long time, policies in the United States seemed to be more
risk averse when it came to protecting consumers. Research
reveals that the tide turned in 1990: since then it was rather the
European Union and its member states that invented strict
regulatory standards (Vogel, 2012). When it came to pharma-
ceuticals, chemicals, or food safety, US standards were strictest
before 1990. Business groups complained about ‘drug lags’and
red tape. Deregulation and Reaganomics in the United States
boosted cost–benefit analysis as a tool for risk regulation
during the 1980s. Lobbying by business groups scaled back the
precautionary principle further.
In the European Union, the common market brought
about change. Following the Single European Act of 1986,
regulatory competition unfolded in Europe. It often came with
a‘California effect’(Vogel, 1997): influential countries with
high standards of consumer protection served as blueprints.
Subsequently, a race to the top went off. It also gave legitimacy
to policies of deregulation. The European Commission
championed these rules worldwide in order to achieve
comparative advantages.
Theoretically and empirically, the precautionary principle is
ambiguous. The rule of thumb ‘better safe than sorry’can avert
risks yet it can also deprive consumers of innovation (Sunstein,
2008). Anyway, the precautionary principle is not just meant to
spare consumers risks. It might also serve as an equivalent for
old school protectionism.
The history of the precautionary principle proves that
motives and hidden agendas of consumer policy are manifold.
Consumer policy can also boost the market position of
national business. Yet governance is never rationally con-
structed. It results from a mix of culture, political institutions,
lobbyism, and economic structure.
Existing modes of governance treat consumers as citizens, as
buyers, or as social groups (Trumbull, 2006). Citizens with
their rights shape the ‘protection model,’whereas buyers are
linked to the ‘information model.’Consumers as social and
political group nourish the ‘negotiation model.’The United
States came close to the ‘protection model,’Germany largely
represents the ‘information model,’and most Scandinavian
countries have enshrined the ‘negotiation model.’
Historically, governance of consumer policy has been
shaped by regulatory tradition, legal systems, and other
institutional factors. The protection model in the United
States emerged because regulatory agencies, common law,
and judicial activism paved the way for mobilizing consumers
(Vogel, 2012). Vice versa, public interest groups achieved new
rights that could be enforced through litigation.
In Germany, ordoliberal tradition of economic policy
considered competition to be the key for consumer policy
(Kelemen, 2011). Government created a unique endowment,
the Stiftung Warentest (product testing). It is supposed to
provide neutral testing and information that serves all
consumers.
In contrast, Scandinavian countries like Sweden have
invented institutions like the ombudsman that consumer
groups and business groups can turn to. This model does not
treat consumers as anonymous buyers but as an organized
group that can deal with conflicts. However, the relation is not
considered adversarial –as in the case of the United States.
Instead, procedures are supposed to mitigate cooperative
relations.
In the meantime, there are signs of convergence. Sweden has
invented class action for consumer issues, adding some
elements of the ‘protection model.’Regulatory agencies in
Germany will get a mandate of consumer protection, resem-
bling patterns in the United States and the United Kingdom.
In addition, the European Union is still planning to bolster
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public interest litigation. Consumer rights seem to be a tool of
creeping convergence in consumer policy.
Fighting for Rights: Public Interest Litigation and
Consumer Policy
Litigation has shaped consumer policy for a long time. Insti-
tutional differences between Europe and the United States are
still striking. Class action is widely unknown in Europe.
Instead, government agencies or associations take the lead in
public interest litigation. Contingency fees and tort damages
are still much more a feature of US adversarial legalism
(Strünck, 2008).
As for the United States, consumer policy got a boost by
judicial activism in the wake of the civil rights movement (Epp,
1998). Ralph Nader figured prominently as an early consumer
advocate, running ‘Public Citizen’as a powerful public interest
group (Eisner, 2000). He picked General Motors as his first
prominent adversary: his paper “Unsafe at Any Speed”depicted
the popular car Corvette as a most dangerous vehicle.
Public interest litigation helped to raise safety standards, to
ban hazardous products, and to protect vulnerable groups
against risks such as smoking. On the other hand, public
interest litigation in the United States averted more compre-
hensive legislation (Kagan, 2007). There are signs that the
European Union officials jump on the bandwagon of class
action (Kelemen, 2011). However, national legal systems still
restrict the scope of public interest litigation in Europe.
Currently, there is no clear picture in European class actions
on the opt-in and opt-out arrangements. Sweden has famously
switched to an opt-in system, whereas countries as diverse as
Portugal, Spain, Denmark, Norway, the United Kingdom, and
Germany have introduced opt-out clauses, at least in consumer
protection law (Cafaggi and Micklitz, 2009). Traditionally,
European countries pursue opt-in strategies due to their legal
tradition of individually authorized lawyers.
The US tradition of opt-out not only raises questions of
accountability but also increases the pressure to settle cases
prematurely. Contingency fees show the same effect. Interest-
ingly enough, opt-in clauses have the effect of producing lead
plaintiffs who are committed and credible toward their
members. Most public interest groups can handle opt-in cases
better than private attorneys.
Another institutional device that affects the activities of
public interest groups is the role of government agencies
(Strünck, 2008). In Sweden, for instance, government agencies
lead public interest litigation despite its corporatist tradition. In
Austria, the federal consumer organization dominates public
interest litigation. The role of government touches on the issue
of funding of the public interest litigation, as well. Third-party
financing is an underestimated factor whenever the scope of
representation is at stake. Above all, ‘loser pays’rule is
predominant in Europe and for public interest groups, it means
that cases they are likely to win will not pose any financial
burden to them (Hodges et al., 2009).
The ‘loser pays’rule also results in high predictability,
compared to punitive damages in the United States. It renders
legal expenses insurance a predictable business, too. Thus,
conditions for external funding are good. This does not
necessarily mean that public interest groups can rely on
funding from third parties. Some European governments
delegate litigation to public interest groups and provide suffi-
cient funding, as well. In Austria, the Ministry of Consumer
Protection regularly assigns litigation to the federal consumer
organization to carry out (Micklitz and Stadler, 2006).
In other countries like France, membership fees are a vital
source of funding of litigation. This, however, creates negative
incentives to sue. The same is true for the German Act Against
Unfair Practices. It allows for skimming of the profits if
corporate misconduct can be proven. Consumer organizations
are entitled to act on behalf of consumers before courts.
Injunctions are almost a standard routine operation for
consumer organizations and self-regulatory bodies of business
in Germany. The business-based center for competition issues
7000 injunctions every year.
To consumer groups litigation is an ambiguous tool.
Depending on funding, they face a time-consuming and very
sophisticated legal process. Whether litigation brings in new
opportunities to frame public discourses depends on subjects
and claimants that are affected. Some types of public interest
groups are small, understaffed organizations that run
campaigns. They are just not experienced enough to undertake
ambitious legal efforts. In addition, campaigning gets quicker
media attention for less effort. Thus, it is a strategic choice for
public interest groups whether to embark on legal venues at
large scale.
Certainly, outcomes for diffuse and weak interests are
different when private parties or lawyers act instead of public
interest groups. In the European setting, effects are mostly
restricted to parties involved in the litigation. It might lead to
policy changes if the case is highly salient and expensive and
the fear of future litigation may deter the market participants
from certain behavior. However, even smaller damages to
consumers might harm public interests. In this case, third-party
funding and standing rights are crucial factors in whether
public interest groups pick up litigation as a strategy.
Litigation aims at enforcing law. Additionally, law firms and
consumer groups can call attention to loopholes in legislation,
mobilizing political clout to change the law. Historically,
litigation has brought about social change, especially in the
United States. Attitudes have changed (smoking), and power
relations have been affected (abortion). Social change is the
main topic of activists who champion ‘political consumerism.’
This trend revives concepts of collective action in consumer
policy.
Fighting for a Better World: New Patterns of Political
Consumerism
Empowering consumers is a crucial goal of consumer policy.
However, some consumer groups need not to be empowered;
they would rather empower other people and the public.
Political consumerism is on the rise, not only in the industri-
alized world. The range of ideas is broad. There are movements
that are fundamentally critical on mass consumption and the
business of branding (Galvagno, 2011). Others target compa-
nies and monitor their activities. They claim that companies are
not just businesses but bear political responsibility. Boycotts
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and buycotts are launched to change corporate behavior. At the
same time, activists want consumers to see the broad picture. In
their perspective, consumption is not just to buy and use
something; consumption affects life of people everywhere.
Some of those activities have resulted in policy change:
governments enacted new standards, a whole range of labels
have emerged, and some companies have revamped their codes
of conduct (Stolle and Micheletti, 2013). Does this trend
increase political participation; does it bring consumers to act
as political group?
New forms of political consumerism are ‘individualized
forms of collective action’(Holzer, 2006). Consumers do not
engage as group but act individually. This kind of market-based
activity makes up for problems of free riding. If consumers are
difficult to organize it is another option to nudge them indi-
vidually. This is why political consumerism is often equated
with voting. In globalized economies with trust in traditional
politics waning, ‘political shopping’might be an alternative
tool of participation.
The figures are striking: people in Sweden and Switzerland
seem to be extraordinarily sensitive toward consumption,
whereas people in South European and East European coun-
tries seem to care least about political consumption. In Sweden
and Switzerland, 50% and more people asked had used posi-
tive buying in the last 12 months, and more than 30% had
boycotted products. In Greece, Portugal, and Hungary figures
did not exceed 10% (Koos, 2012).
It is not just postmaterialist attitudes that drive political
consumerism. Political and economic variables matter, too,
which is why countries show different forms of activism.
Several variables account for these differences: The more
affluent a society, the more likely are people to use consump-
tion to express political values. Highly concentrated markets in
retail services seem to trigger backlashes, too. Additionally,
more decentralized political institutions ease political
consumption. However, nongovernmental organizations and
social movements do not significantly increase the level of
political consumption. Apparently, their campaigns still much
more focus on other issues that do not translate into critical
consumption.
Technology has fundamentally changed opportunity struc-
tures. Social media make companies vulnerable to attacks on
their reputation. Codes of Corporate Social Responsibility
(CSR) are an answer to new waves of political consumerism
(Stolle and Micheletti, 2013). Consumer policy indirectly
contributes too. The more labeling, the better the opportunity
structures (Koos, 2011). Vice versa, labeling results from
campaigning.
Social scientists fret over whether critical consumption
really resembles political participation. Some stress that people
act as ‘consumer citizens,’using economic tools for political
reasons. Others decry the volatile behavior of consumers.
Whatever the motivation for political consumption, environ-
mental risks and labor standards in the developing world are
often targets. Thus, consumer policy in advanced economies
might help to improve those conditions. Thus, critical
consumers primarily care about employees in developing
countries.
Political consumerism calls attention to side effects of
global production. This also sheds light on risks that consumers
in developing countries are facing. Small producers might be
exploited to serve the needs of Western consumers. On the
other hand, consumers in those countries are exposed to
fundamental risks of products, too.
In most developing countries, consumer policy is still in the
wake. However, it has to tackle most elementary health risks to
consumers, mainly connected with food and pollution. Aside
from pollution, it is food safety that is most critical to China’s
ruling communist party (Jiang and Zhu, 2013).
Consumer policy figures prominently in advanced econo-
mies whose markets are regulated. Consumer organizations,
the media, and lawyers push governments to act on behalf of
consumers. It is not like that in developing countries.
Consumer policy in the less developed world is just in the
making. This leaves ample room for governments to imitate
policies or to invent new forms of governance. Quite generally,
changes in society and markets challenge consumer policy.
Challenges to Consumer Policy
Traditionally, safety of products has been one of the core
issues of consumer policy. The rise of the service sector has
highlighted the issue of quality control. More recently, the
financial crisis has shown that even the fiercest competition
does not keep consumer from being ripped off. Financial
services, old-age provision, and other services are hard to assess
for individual consumers. At the same time, those investments
are supposed to last for a long time. Often, vulnerable
consumers fall victim to services with long-term impact. Thus,
creating transparency and setting enforceable quality standards
are the main tasks of consumer policy in the future.
Additionally, digital markets pose new challenges. Do users
of social media need to be protected against data transfer? In
a strict sense, people are ‘users’not ‘consumers,’of social
media. Does traditional consumer policy apply? Transnational
shopping through the internet provides lots of advantages and
also problems to consumers. Can they enforce their rights if the
provider runs its business in a remote place? Can consumers
trust providers that run consumer advice online? Regulating
digital markets will remain a huge challenge to consumer
policy.
Another aspect is sustainable consumption. Here the debate
on soft paternalism pops in. Is it OK to nudge consumers in
order to ponder sustainable choices? What to do about waste
and reuse of products? Do companies primarily bear respon-
sibility or is it consumers, too, who have to act?
A contentious issue in international politics is free trade
agreements. The pending Transatlantic Trade and Investment
Partnership between the United States and the European Union
is a test case. Consumer advocates stir up fears of genetically
modified organism entering European markets against the will
of consumers. Which level of regulation is up for negotiations?
As for governance, the role of government is likely to
change. Consumer policy has mostly been protection by law.
However, are governments capable of enforcing the law in ever
more complex markets? Alternatively, will litigation and tort
damages step in as the more effective precautionary principle?
In fragmented political systems like the United States or
the European Union, third sector organizations increasingly
736 Consumer Policy
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implement policies. Will consumer groups and campaigns take
on more responsibility? Will companies engage more in
cooperative relations with consumer groups to bolster CSR
policies?
The situation in developing countries is different. Grass-
roots protests against contaminated food or polluted drinking
water urge governments to act. Yet, civil society might still be
too weak to craft and implement policies themselves. Given the
imminent threat of food safety issues and other risks, civil
society organizations might pick up consumer policy as
a crucial issue. Handling basic risks for consumers is a litmus
test for governments’legitimacy; this is even truer in countries
where everyday life comes with lots of risks.
Consumer policy has often been scandal driven. Nondem-
ocratic governments might just ride out things. In democratic
societies, scandals often punctuate a long time policy equilib-
rium, opening up space for outsiders to lobby (Baumgartner
and Jones, 2002). Future politics and research will show who
is able to shape and deliver consumer policy, for which groups,
for which goals, and for how long.
See also: Antitrust Policy: Lessons from the US; Behavioral
Economics; Ethical Codes, Professional: Business Codes;
Governance; International Trade: Commercial Policy and Trade
Negotiations; Internet and Privacy; Issue Networks: Iron
Triangles, Subgovernments, Policy Communities, Policy
Networks; Law and Economics; Public Choice Economics;
Public Policy; Regulation, Empirical Analysis of; Regulation,
Political Economy of; Regulatory Agencies.
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