Consumer protection is varied in its instruments, form, and substance, more so than competition law.
As regards the instruments, consumer policy has a conventional enforcement element (that is most marked in respect of misleading and deceptive conduct). Misleading conduct may harm consumers, but it can also harm honest competitors. An example arose in ACCC v Reckitt Benckiser (RB). RB marketed a standard general pain relief pill. It then began to market specific pain relief pills for back pain, migraine and other specific pains charging about double the price for the standard pill, even though each specific product was the standard pill. Aside from the harm to consumers, there was harm to honest competitors by diverting sales away from them.
Consumer policy, however, also covers weights and measures, product quality and safety standards, industry codes of conduct, the regulation of behaviour in individual professions and occupations, and consumer ombudsman and dispute resolution mechanisms.
While there are some important consumer protection instruments that are economy-wide, they are usually paralleled by an extensive assortment of sector- or market-specific instruments. These rely on a broad range of enforcement instruments and in some cases (such as information and consumer education) are very “soft” forms of regulation.
Consumer policy and competition law generally share a common purpose and, in that regard, reinforce one another.
Broadly, as a general matter, competition law and policy aims at protecting and, where appropriate and efficient, extending the range of choices available for the consumer. For example, where firms operate in competitive markets, they have incentives to develop and protect a reputation for being good quality suppliers, as this allows them to secure repeat business and reduce marketing costs. In that sense, ensuring that a market is competitive can help meet one of the central concerns of consumer policy.
The same applies to many consumer policy interventions. For example, policies that ensure that advertising and product descriptions are honest and reasonably informative, that contract terms and the obligations they involve are understandable and not disproportionate, and that consumers can reasonably expect products to be safe and fit-for-purpose, will both make consumer choice a more effective discipline (thus directly strengthening competition) and will force firms to compete on the merits (rather than on the basis of fraudulent or misleading claims or of unfair contract terms).
Each of these instruments can, however, create challenges for the other. For example, opening a previously highly regulated market to competition may well raise new issues for consumer protection:
- Many countries faced new consumer protection issues as a result of the liberalisation of financial markets, which, however beneficial it may have been, exposed consumers to new risks and difficulties.
- Equally, the introduction of competition into some public utility markets (such as electricity and telecommunications) has created challenges in terms of regulation of service quality and of issues such as the management of churn, of customer complaints and of disconnection for non-payment. It has also raised questions about the ability of consumers to understand what are often complex pricing schemes and exercise choice between them.
- Finally, liberalisation of professional services poses complex questions about balancing competitive pressures (for example, in terms of pricing and marketing, including advertising) with the protection of consumers in situations characterised by potentially large information asymmetries and substantial error costs.
Moreover, when a market becomes more exposed to competition than it was (say, because of the removal of trade barriers), the incentives of market participants may change in ways that raise consumer protection concerns:
- For example, incumbent firms, faced with customers that are more mobile, may seek ways of locking customers in, including by building termination penalties into customer contracts. While those arrangements can be fully reasonable in some instances, they may raise both competition and consumer protection concerns in others.
- At the same time, the liberalised market may attract fly by night operators, whose unscrupulous practices undermine consumer confidence in the market as a whole, reduce consumers’ willingness to rely on information firms in that market provide, and thereby erode the incentives for all firms to act honestly. Moreover, those firms that do act honestly will be forced to bear additional costs in so doing (as they seek to signal to consumers the higher quality of the information they provide), increasing prices and reducing both consumer and producer surplus.
- Finally, the advent of the digital world has opened up a mass of consumer protection issues, many traditional, some relatively new for competition regulation e.g. privacy, data use and misuse, non-disclosure of data use, non-cancellable subscription services, ‘take down’ orders.
In the same way, consumer protection policies, however well-intentioned, can have adverse consequences for competition, with the ultimate outcomes being contrary to the goals that both consumer and competition policy should seek. Classic cases include prohibitions on comparative advertising, mandatory product standards that exclude low-cost entrants and products, and transparency and posted price requirements that facilitate collusion.
It is not surprising that substantial numbers of countries around the world integrate in one organisation the operation of the two policies (at least to some extent) whilst a substantial number do not. Indeed, where the policies are brought together, it is usually not a full integration. The most frequent are laws prohibiting false or misleading conduct (‘false advertising’). At the other end of the spectrum laws about weights and measures are left with consumer protection bodies or other parts of government. In countries with multi-level government characteristics such as federations, much consumer protection is left in the hands of lower levels of government, other than where there are substantial national issues.
Overall, there are a number of respects in which gains can be achieved by locating responsibility for both competition policy and consumer policy in a single institution. Those gains include:
- Benefits in terms of better policy coordination, and in particular, in the selection of policy instruments to meet the needs of particular fact-situations;
- A better understanding by policy-makers and enforcers in each area of the role and limitations of the other; and
- The ability to secure economies of scope in access to resources and in the efficacy of monitoring and accountability processes.
However, there are also inherent limits to the possibilities for integration:
- The nature of the tasks involved in implementing consumer policy differs greatly from those involved in the administration of competition policy, reducing the economies of scope achievable through their integration; and
- It is an inherent feature of any effective policy of consumer protection that it will involve a range of agencies, and (especially in federal countries) span several territorial levels of administration.