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The unintended consequence of doorstep consumer protection: surprise, reciprocation, and consistency

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An Erratum to this article was published on 06 July 2012

Abstract

Cooling-off periods are universally employed in doorstep selling regimes. Paired with a right for consumers to withdraw from the contract, this legal instrument seeks to protect consumers against superior skilled and knowledgeable sellers thus restoring the balance of interests. According to prior literature, cooling-off periods also serve an economic function by moderating the abuse of market power, by mitigating problems of hidden characteristics, and by promoting consumer choice. If their drawbacks—mainly the creation of consumer moral hazard and shifting of risk to the seller—can be contained, cooling-off periods are hence supposed to yield efficiency gains. By thinking out of this box, the present paper showcases that cooling-off periods also establish the perverse incentive for the seller to increase consumer compliance to a level which outlasts the cooling-off period. I argue that inevitably occurring psychological factors and transaction costs from the cooling-off regime amplify each other, thus creating a hard-lock status-quo bias. Based on behavioural insights and transaction cost theory, I predict that an inefficiently high number of consumers will enter into a doorstep contract and that, at the same time, the number of cancelled contracts will be inefficiently low. Consequently, I propose to change the default inherent in current cooling-off regimes from presumed consent to presumed withdrawal in order to debias consumers’ withdrawal decision.

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Notes

  1. Compare for Europe Art. 2 (8) of Directive 2011/83/EU of October 25, 2011 on consumer rights, OJ L 304, pp. 64–88 (hereinafter: Consumer Rights Directive).

  2. Compare SELDIA Annual Report 2009/2010.

  3. Compare DSA Fact Sheet 2009; reported sales volume equalling $28.33 billion; exchange rate of US Dollar towards Euro averaging 0.70001 in 2009.

  4. Statistics by the World Federation of Direct Selling Associations (WFDSA) available at http://www.wfdsa.org (last visit on June 27, 2011); reported sales volume equalling $117.5 billion; exchange rate of US Dollar towards Euro averaging 0.70001 in 2009.

  5. Rather than giving consumers a right to withdraw, American law generally relies on mandated disclosures, requiring sellers only to alert consumers of onerous, unexpected terms by using conspicuous language in the contract. If the consumer is merely unhappy with the goods once she has had a chance to inspect or use them, there is no general remedy as long as the goods conform to the descriptions and warranties, unless the contract itself provides the right to return the goods (Ben-Shahar and Posner 2011).

  6. See supra at footnote 1.

  7. Compare Art. 9 (1) Consumer Rights Directive.

  8. Compare Art. 2 (8) Consumer Rights Directive as well as Consumer Rights Directive, recital 21.

  9. Compare recitals of Directive 85/577/EEC. Compare Annexes to the Commission’s Proposal for a Consumer Rights Directive, from October 8, 2008, COM(2008) 614 final, p. 106.

  10. European Consumer Commissioner Meglena Kuneva, Speech on the “Contract Rights Directive”, SPEECH/08/507 on October 8, 2008.

  11. Consumer Rights Directive, recital 14.

  12. For an overview of which products are most often sold at the doorstep, compare the SELDIA Annual Report 2009/2010.

  13. Compare SELDIA Annual Report 2009/2010.

  14. Also compare Art. 20 (1), (2) Consumer Rights Directive.

  15. See Art. 9 (1) Consumer Rights Directive.

  16. This approach can e.g. be found in German Civil Law. See Sections 312, 357 I 1, III 1, 346 II 1 Nr. 3 German Civil Code (BGB). Likewise, in Art. 14 (2) the new Consumer Rights Directive now accounts for a diminished value resulting from usage other than what is necessary to establish the nature, characteristics and functioning of the good.

  17. If the principal, i.e. the consumer, has to fulfil his primary contractual obligations—usually paying some amount of money—only after the cooling-off period has expired, implementing cooling-off periods also generate costs of delay equal to the time value of money. In the context of doorstep transactions, I assume that the price for the product is paid immediately. Hence the costs deferred payments do not play a role. Further discussion of the costs of delay is provided by Rekaiti and Van den Bergh (2000).

  18. Compare Art. 14 (1) Consumer Rights Directive.

  19. The figure of thought of unintended consequences is spread across a vast range of academic disciplines. It also has roots in economics (Hayek 1994) and, more generally, in sociology (Weber 2002). Merton (1936) however, developed the first comprehensive, systematic, and conceptual contribution.

  20. Put shortly, Dual Process Theory holds that humans think in two systems, System 1 and System 2 (Evans 2008; Evans and Frankish 2009; Stanovich and West 2000). While System 1 operates automatically and triggers intuitive responses with little effort, System 2 leads to reflective and rational thinking by allocating attention to effortful mental activities.

  21. A compilation to be highly recommended is provided by Cialdini (2009).

  22. A reciprocal altruist is only willing to reciprocate if there are future rewards arising from reciprocal actions (Falk and Fischbacher 2006). In game theory this kind of reciprocal action may be supported as an equilibrium strategy in infinitely repeated games or in finitely repeated games with incomplete information (Kreps et al. 1982). But such forms of economic reciprocation are not the subject of the further analysis.

  23. See supra at p. 17.

  24. It is noteworthy that although reciprocity is supposed to be the main driver of the effectiveness of the rejection-then-retreat technique, another aspect reinforces its potential. One of these supporting mechanisms is what psychologists know as the perceptual or contextual contrast principle (Tormala and Petty 2007). This principle affects the way humans see the difference between two things that are presented one after another. In the terminology of Prospect Theory, the contrast principle concerns a change of reference point. The preliminary large request shifts the reference point and the second request seems smaller by comparison.

  25. See supra at p. 16 et seq.

  26. The seminal work on cognitive dissonance is provided by (Festinger 1957).

  27. See supra at note 20.

  28. On mindless choosing compare Thaler and Sunstein (2009, Ch. 2).

  29. Interestingly, it mattered a lot whether participants actually carried out the initial small request and answered the questions. When they only agreed to do so but actually did not need to perform the initial request compliance with the latter request increased non-significantly to 33.3 %.

  30. During his investigations into sales organisations Cialdini (2009, Ch. 3) also discovered that salespersons made use of techniques—like e.g. having customers instead of them fill out the sales agreement—which build on utilising the force of consistency exactly as a response to cooling-off regulation.

  31. See supra at p. 23.

  32. Thaler and Sunstein (2009) use the catchy phrase “yeah-whatever-heuristic” to describe a lack of attention.

  33. OFT Market Study on Doorstep Selling (2004), Annex L, p. 49. Available at: http://www.oft.gov.uk/OFTwork/markets-work/completed/doorstep-selling (last visit: February 28, 2012).

  34. A similar concept governs German contract law for minors. There, the validity of the contract generally depends on the consent of the legal representative. Compare Sections 106 et seq. BGB (German Civil Code). In case of doorstep transactions with cooling-off periods, the legal representative would be the future self.

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Hoeppner, S. The unintended consequence of doorstep consumer protection: surprise, reciprocation, and consistency. Eur J Law Econ 38, 247–276 (2014). https://doi.org/10.1007/s10657-012-9336-1

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