Consumer Protection Under Laissez-Faire Regulation

Under laissez-faire regulation, regulators choose not to interfere primarily because they seek to stimulate innovation and protect enterprises from the costs imposed by regulatory compliance. Yet, empirical evidence regarding the ability of laissez-faire regulation to ensure consumer protection is lacking. We test empirically, whether current laissez-faire regulation of price advertising claims (PACs) on popular reward-based crowdfunding platform Kickstarter is sufficient to protect consumers. To do so, we combine data from 12 different sources including official consumer complaints filed with the FTC, BBB, SEC, FBI, and cfpb and analyze 34,745 Kickstarter campaigns covering more than 6 years. We find that consumers of PAC campaigns pay more when buying on Kickstarter than when later buying the same product on retail platforms Amazon or Steam despite PAC campaigns advertising the opposite. In contrast, consumers of campaigns that do not use PACs (NoPAC) pay less on Kickstarter than retail customers do. We thus establish the existence of economic injury among consumers backing PAC (vs. NoPAC) campaigns. Moreover, we find no evidence of other countervailing benefits for consumers backing PAC (vs. NoPAC) campaigns, no evidence of consumers learning about the economic injury associated with PAC (vs. NoPAC) campaigns and adjusting their expectations and behaviors, and no evidence of effective self-regulation mitigating economic injury associated with PACs, neither by campaign managers nor by Kickstarter. Do not cite or distribute without permission of the authors 1 Consumer Protection Under Laissez-Faire Regulation This Version: February 28, 2018 Under laissez-faire regulation, regulators choose not to interfere—primarily because they seek to stimulate innovation and protect enterprises from the costs imposed by regulatory compliance. Yet, empirical evidence regarding the ability of laissez-faire regulation to ensure consumer protection is lacking. We test empirically, whether current laissez-faire regulation of price advertising claims (PACs) on popular reward-based crowdfunding platform Kickstarter is sufficient to protect consumers. To do so, we combine data from 12 different sources including official consumer complaints filed with the FTC, BBB, SEC, FBI, and cfpb and analyze 34,745 Kickstarter campaigns covering more than 6 years. We find that consumers of PAC campaigns pay more when buying on Kickstarter than when later buying the same product on retail platforms Amazon or Steam—despite PAC campaigns advertising the opposite. In contrast, consumers of campaigns that do not use PACs (NoPAC) pay less on Kickstarter than retail customers do. We thus establish the existence of economic injury among consumers backing PAC (vs. NoPAC) campaigns. Moreover, we find no evidence of other countervailing benefits for consumers backing PAC (vs. NoPAC) campaigns, no evidence of consumers learning about the economic injury associated with PAC (vs. NoPAC) campaigns and adjusting their expectations and behaviors, and no evidence of effective self-regulation mitigating economic injury associated with PACs, neither by campaign managers nor by Kickstarter.