Abstract
According to the EU Consumer Protection Directive a purchaser has the right to ask for either repair or replacement of a defect product, whereas before in some member countries only one of these remedies were available. It seems to be taken for granted in the Directive and in Green Papers that such a reform is an advantage to the consumers. An analysis of a case at the Supreme Court of Norway demonstrates that the opposite might be true. It will be argued that both purchasers and vendors will be better off if the Directive is interpreted in accordance with economic theory. Harmonization of consumer protection across EU countries might be counterproductive. The analysis is of general interest in the sense that it demonstrates that mandatory changes in rights and obligations among contracting parties may have distributive effects different from what is commonly assumed.
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Notes
HR-2006-00299-A-Rt-2006-179. The case is discussed in Eide (2007). In that article the discussion is not embedded in the EU context.
The consumer sales law (Forbrukerkjøpsloven lov nr. 34/2002), § 29 is mainly a translation of Article 3, Sect. 3 of the EU Directive 1999/44/EF on certain aspects of the sale of consumer goods and associated guarantees. Article 3, Sect. 3 reads:
“In the first place the consumer may require the seller to repair the goods or he may require the seller to replace them, in either case free of charge, unless this is impossible or disproportionate.
A remedy shall be deemed to be disproportionate if it imposes costs on the seller which, in comparison with the alternative remedy, are unreasonable, taking into account:
– the value the goods would have if there were no lack of conformity,
– the significance of the lack of conformity, and
– whether the alternative remedy could be completed without significant inconvenience to the consumer.”
In this paper I do not distinguish between purchaser and consumer, nor between vendor and producer.
Green Paper on guarantees for consumer goods and after-sales services, COM (93)509.
Green Paper on the review of the consumer acquis, COM (2006)744.
All member states recognized the purchaser’s right to demand repudiation of the contract or a reduction in price, although the conditions for exercising this right varied. The purchaser’s right to have the merchandise repaired was enshrined in Denmark, Spain, Greece, Ireland, the Netherlands, and Portugal, whereas replacement of the product by a non-defective product was explicitly provided for in Germany, Spain, Greece, Ireland, the Netherlands, and Portugal. Only rarely could the purchaser choose between the different options.
As an alternative to a warranty, the buyers could separately buy insurance from independent companies, but transaction costs are saved by bundling insurance to products. Such bundling also alleviates consumer moral hazard because a producer normally is in a better position than a third party (an independent insurer) to detect product misuse.
One may, however, question the relevance of this theory because it seems that warranties within industries, including dominant remedies, are rather similar despite quality differences (Chapman and Meurer 1989).
In cases where the purchasers would prefer repair to replacement, and/or repair is more costly than replacement, the strengthening of the legal protection of the consumers by introducing replacement as an available remedy, would have no effect on the choices of the parties.
For simplicity, the shifts in the two curves are assumed to be constant.
It is sufficient that the supply curves are horizontal in the neighborhood of the equilibrium solution.
The right of replacement causes a decrease in the consumers’ surplus, whereas the producers’ surplus is zero for both rules.
One may also wonder whether a court would stick to the proportion of costs if the costs are higher, say 500 Euro for replacement and 400 Euro for repair. Here, the proportion is 1.25–1, which perhaps would be too low to make repair the adequate remedy, whereas the difference of 100 Euro perhaps would. The court’s decision has not appreciably reduced the vagueness of the exemption clause.
Discussing the court case with a lady at a party, she got upset by the presumption of modest inconvenience. “Have these judges not heard about the time trap of women”, she exclaimed. “We have demanding jobs, we keep the house, prepare meals, take care of children, parents and perhaps even our husband, and then these judges dare to presume that an additional journey to the shop to fetch a repaired ankle boot is not clearly inconvenient”.
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Acknowledgments
I would like to thank an anonymous referee for helpful suggestions, and Roger van den Bergh who discussed a preliminary version of the paper at the 24th Annual Conference of the European Association of Law and Economics.
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Eide, E. Is the consumer directive advantageous for the consumers?. Eur J Law Econ 28, 289–307 (2009). https://doi.org/10.1007/s10657-009-9111-0
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DOI: https://doi.org/10.1007/s10657-009-9111-0