As the enactment of a competition law seems like a forgone conclusion, some in HK have started contemplating whether we would need a consumer protection law. Read more here.
Let's take a close look of an example of how one government agency in the name of protecting patients (consumers of drugs) actually harms them.
FDA in the US rejected Genasense, a new drug developed by a small company Genta to treat patients with CLL. Genat filed an appeal in early April.
And according to an oped in WSJ:
"Genta's announcement of the filing included a statement from one of the expert physicians: "It is puzzling that they would deny approval to a drug that met its primary and key secondary endpoint, especially since these findings were observed in the only randomized controlled trial that has ever been conducted in patients with relapsed CLL."
The FDA's handling of Genasense lays bare the all too common, aggressive incompetence of the FDA's cancer-drug division and should lead to an immediate examination of its policies and leadership, followed by swift corrective action. As for the FDA's belief that their power to control us and even deny us the pursuit of life itself is unlimited under the Constitution, we can only hope the appeals court disagrees. An agency that blocks progress against deadly diseases -- while arguing that its power to do so is above challenge -- is in dire need of a court supervised review."
Read the whole thing here.
Well, why I should I trust this writer you say. Sure, so you want scientific evidence on why the costs of having a FDA outweigh the benefits. Read this, and decide for yourself whether you still want it afterwards.
Showing posts with label Consumer Protection. Show all posts
Showing posts with label Consumer Protection. Show all posts
Friday, May 04, 2007
Wednesday, April 25, 2007
No, I Don't Believe in Consumer Protection Law
Peter up at HK Competition Law asked:
"I'm know that at a macro level we can leave competitive markets to work things out over the longer term, but at the micro level (like you or me as a single consumer entering into a single transaction) is there a need for some protection against unscrupulous businesses? The theory is good, but the reality can be quite different. I know there are problems with law enforcement etc. But as a concept, do you think some consumer protection is a good thing (for instance, mandatory product labelling) or should we not bother?"
Read more of Pete's comments here, and my original post here.
My answer to Pete's question of whether I think there is a place for consumer protection law is NOPE. A lot of studies have been conducted aiming at evaluating the effectiveness of consumer protection regulations and most of them would tell us that the costs of having such law far outweigh the benefits they would bring.
Here is one example:
"Since the 1910s, the Federal Trade Commission has sought to promote truth in advertising. Specifically, it is responsible for preventing deceptive acts or practices in the sale of various products, with particular attention given to food, drugs, and alcohol. In accordance with its regulations that define deceptive practices, the FTC conducts investigations of alleged falseadvertising and can order firms to stop running particular ads.
Peltzman (1981) found that the investigations raised firms’ costs, but itwas unclear whether they enabled consumers to make more informe dchoices that enhanced their welfare."
The above quotation is from p.29 of the excellent book by Brookings scholar Clifford Winston. The title of the book is aptly named as Government Failure vs Market Failure. Read it for free here.
Since I expect readers of this post would read Winton's book themselves, so my response would be brief.
People expect government would do a better job than the market in protecting consumers because they assume:
1) While market imperfections (or what they would label as market failures) are widespread, government operates smoothly without a glitch. This is what Harold Demsetz, a professor of economcis at UCLA, called the nirvana approach to economics in his 1969 piece "Information and Efficiency: Another Viewpoint," Journal of Law and Economics.
2) Government officials are actually out there to serve US and not themselves. So a person who would be a greedy monster if he or she works in the private market would suddenly turn into a saint once he or she joins the government.
I think both of these assumptions are false.
So both theory and evidence reported in empricial studies convince me consumer protection laws have only a very small role to play, if there is any, in our economy.
"I'm know that at a macro level we can leave competitive markets to work things out over the longer term, but at the micro level (like you or me as a single consumer entering into a single transaction) is there a need for some protection against unscrupulous businesses? The theory is good, but the reality can be quite different. I know there are problems with law enforcement etc. But as a concept, do you think some consumer protection is a good thing (for instance, mandatory product labelling) or should we not bother?"
Read more of Pete's comments here, and my original post here.
My answer to Pete's question of whether I think there is a place for consumer protection law is NOPE. A lot of studies have been conducted aiming at evaluating the effectiveness of consumer protection regulations and most of them would tell us that the costs of having such law far outweigh the benefits they would bring.
Here is one example:
"Since the 1910s, the Federal Trade Commission has sought to promote truth in advertising. Specifically, it is responsible for preventing deceptive acts or practices in the sale of various products, with particular attention given to food, drugs, and alcohol. In accordance with its regulations that define deceptive practices, the FTC conducts investigations of alleged falseadvertising and can order firms to stop running particular ads.
Peltzman (1981) found that the investigations raised firms’ costs, but itwas unclear whether they enabled consumers to make more informe dchoices that enhanced their welfare."
The above quotation is from p.29 of the excellent book by Brookings scholar Clifford Winston. The title of the book is aptly named as Government Failure vs Market Failure. Read it for free here.
Since I expect readers of this post would read Winton's book themselves, so my response would be brief.
People expect government would do a better job than the market in protecting consumers because they assume:
1) While market imperfections (or what they would label as market failures) are widespread, government operates smoothly without a glitch. This is what Harold Demsetz, a professor of economcis at UCLA, called the nirvana approach to economics in his 1969 piece "Information and Efficiency: Another Viewpoint," Journal of Law and Economics.
2) Government officials are actually out there to serve US and not themselves. So a person who would be a greedy monster if he or she works in the private market would suddenly turn into a saint once he or she joins the government.
I think both of these assumptions are false.
So both theory and evidence reported in empricial studies convince me consumer protection laws have only a very small role to play, if there is any, in our economy.
Monday, April 23, 2007
Firms Compete at Multiple Margins
In response to my earlier post on consumer protection law, Peter asked:
"Could the issue be one of the availability and reliability of information in consumer transactions? "
Producers, of course, have more info regarding characteristics of their products compared with consumers. Sellers would be compelled by competition to try the best they could to lure customers. One way to do so, of course, is to compete against in each other in doing the best they could to inform customers about their products.
In other words, competition is multi-dimensional. It entails not only price, quantity and quality, it would include after-sales services like warranties to address the information asymmetry problem as well in producers' bid to draw customers.
Peter also asked:
"Take a law against misleading or deceptive conduct, for instance. We already have such a law in the form of section 7M of the Telecommunications Ordinance, but it only applies to telecommunications licensees. What's your view on the need for/effectiveness of this prohibition in what is a very competitive industry (there are a number of decided cases on the OFTA website www.ofta.gov.hk)? Could it be of greater utility in other industries? "
I would caution against attributing the well-functioning character of the telecom market to that section 7M. One has to bear in mind that once HK starts liberalizing its telecom market, competitive forces are unleashed, and my argument is that these competitive forces would ensure that the information aysmmetry problem would be adequately addressed.
Hence, one should be careful about the reverse causality problem here. That is, the well-functioning of the telecom market as a result of the intense competition introduced after liberalization creates the false impression that the causality runs the other way (ie the smooth working of the market is a consequence of the existence of section 7M in the Telecom Ordinance).
"Could the issue be one of the availability and reliability of information in consumer transactions? "
Producers, of course, have more info regarding characteristics of their products compared with consumers. Sellers would be compelled by competition to try the best they could to lure customers. One way to do so, of course, is to compete against in each other in doing the best they could to inform customers about their products.
In other words, competition is multi-dimensional. It entails not only price, quantity and quality, it would include after-sales services like warranties to address the information asymmetry problem as well in producers' bid to draw customers.
Peter also asked:
"Take a law against misleading or deceptive conduct, for instance. We already have such a law in the form of section 7M of the Telecommunications Ordinance, but it only applies to telecommunications licensees. What's your view on the need for/effectiveness of this prohibition in what is a very competitive industry (there are a number of decided cases on the OFTA website www.ofta.gov.hk)? Could it be of greater utility in other industries? "
I would caution against attributing the well-functioning character of the telecom market to that section 7M. One has to bear in mind that once HK starts liberalizing its telecom market, competitive forces are unleashed, and my argument is that these competitive forces would ensure that the information aysmmetry problem would be adequately addressed.
Hence, one should be careful about the reverse causality problem here. That is, the well-functioning of the telecom market as a result of the intense competition introduced after liberalization creates the false impression that the causality runs the other way (ie the smooth working of the market is a consequence of the existence of section 7M in the Telecom Ordinance).
Protection of Consumer Interests, why?
There is a discussion going on up at Hong Kong Competition Law about how HK consumers are not being protected by their government compared with governments elsewhere where consumers protection laws are in place.
Why consumers need protection? Is it not the case that standard economics tells us that a market with sufficient competition will ensure that consumers get what they want at the lowest possible prices?
OK, you respond, sometimes markets might fail because of monopoly and other anti-competitive practices. Hence, leave them alone, markets might be unable to provide consumers with what they want at the lowest possible prices.
Let's assume for a moment that indeed that were the case. So you introduce a competition law, a law supposedly would ensure that markets stay competitive. And let's check how we are doing here. With the markets functioning properly with the help of a competition law, aren't consumers' interests get well taken of already. If so, why we would need another law which supposedly would perform the same function as competition law? That is why need to have another consumer protection law on top of a competition law?
The only argument I can think of for a consumer protection law separate from a competition law is to assume that consumers DO NOT KNOW WHAT WANT. Putting it in another way: While competition can offer them what they want at the best prices and quality, those wants might not be serving their best interests.
I just don't think that is the case. Do you believe that some government lawyers would know better than you do where your real interests lie?
Why consumers need protection? Is it not the case that standard economics tells us that a market with sufficient competition will ensure that consumers get what they want at the lowest possible prices?
OK, you respond, sometimes markets might fail because of monopoly and other anti-competitive practices. Hence, leave them alone, markets might be unable to provide consumers with what they want at the lowest possible prices.
Let's assume for a moment that indeed that were the case. So you introduce a competition law, a law supposedly would ensure that markets stay competitive. And let's check how we are doing here. With the markets functioning properly with the help of a competition law, aren't consumers' interests get well taken of already. If so, why we would need another law which supposedly would perform the same function as competition law? That is why need to have another consumer protection law on top of a competition law?
The only argument I can think of for a consumer protection law separate from a competition law is to assume that consumers DO NOT KNOW WHAT WANT. Putting it in another way: While competition can offer them what they want at the best prices and quality, those wants might not be serving their best interests.
I just don't think that is the case. Do you believe that some government lawyers would know better than you do where your real interests lie?
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