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The Need for Consumer Protection
Consumer protection law seeks to restore a balance in power between sellers and buyers in the market place. In order to understand the distortion of bargaining power in the current market place, let's first consider a brief overview of what is often referred to as "the perfect market."
In a perfect market buyers have adequate information to make informed decisions about the products they buy. The buyer, equipped with accurate and complete knowledge of a product's value and associated risks, possess bargaining power. That is to say, the buyer may influence the quality and quantity of products sold. Under these circumstances the buyer will more often than not, purchase products with value exceeding the cost of the associated risks. Demand will decline for high risk low value products and accordingly fewer of these products will be offered for sale in the market place. The law of supply and demand naturally encourages the production of high value low risk products and inversely discourages the production of high risk low value goods. In a sense, a market where buyers are empowered with adequate product information will police itself.
As you probably know today's marketplace is often less than perfect. Sellers may exhibit one or more of the following characteristics:
1. Produces highly complex products in a fast-paced market - Products such as financial instruments are highly complex. Moreover, even if information is available, there is insufficient time to read and understand it before purchasing the good.
2. Engages in deceptive or misleading practices in order to improperly influence the purchase of a particular product. - Marketing ads are often aimed at bending or distorting the truth about the products being promoted. What's more, product labeling and product descriptions often serve as an additional means of advertising as opposed to providing the consumer with useful information.
3. Posses large market share or monopoly power making it less sensitive to fluctuations in buyers' preferences and concerns. - Even if buyers have access to accurate information, and sufficient time to read the information and subsequently make an informed decision, the seller's market position maybe so substantial as to offset normal rules of supply and demand.
The result is either an ill-informed buyer, a sizeable distortion in bargaining power in favor of the seller, or both. This truth becomes increasingly more apparent in more complex markets - Think credit cards, title loans, mortgages, and other products associated with financial markets. Fortunately, consumer protection laws have been implemented on federal and state levels.
From the author: Alabama Bankruptcy Law Firm