Friday, August 03, 2012

Reading list: bait and switch

David Adam Friedman, Explaining “Bait-and-Switch” Regulation.  Abstract:
“Bait and switch” can describe a range of commercial behaviors common in the everyday marketplace, but virtually ignored in the academic literature.  The traditional definition of unlawful bait and switch applies to insincere offers to sell one item in order to induce the buyer to purchase another.  Certain sellers have historically employed bait-and-switch tactics, including urban retailers, aluminum siding companies, and supermarkets.
Colloquially, this definition can also cover lawful or other borderline sales tactics, including the use of teaser rates or low introductory pricing, or even “free offers.”  Even common lawful tactics, like the deliberate routing of customers past other retail displays on their way to purchase  high-volume or featured items, could be described as involving “bait” to induce other purchases.
Why are some of these behaviors lawful and others unlawful?    In this Article, I examine several different flavors of bait-and-switch tactics, exploring the underlying behaviors behind the tactics and the welfare implications of regulating them.  Looking to the literature on commercial custom and norms, I  find a pattern showing that bait-and-switch practices that align with custom and norms  tend to be lawful, and those that do not, tend to be unlawful.  Welfare advancement seemingly plays a distant secondary role in explaining bait-and-switch regulation.
My finding should compel regulators to consider whether the goal of elevating the market atmosphere by  banning  offensive behavior should trump  welfare  concerns.  Further, my  conclusion  can also help advocates shape more effective arguments for adjusting trade practice regulation.
I was particularly interested by the discussion of Gregory T. Gundlach, Carl F. Mela & William L. Wilkie, Does “Bait and Switch” Really Benefit Consumers?, 17 Marketing Sci. 273 (1998), which fits into Friedman’s moral/economic discussion by making the point that deliberate bait and switch tactics correlate with other abusive and fraudulent practices: in other words, contempt for one’s consumers spills over into further deception and mistreatment, providing a reason to ban deliberate bait and switch even if, in a world in which both buyers and sellers were all rational robots, the tactic would be fine.  Whether this means that morality is efficient or that efficiency alone can’t make sense of human behavior, it’s a useful point to keep in mind.

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