CL&P Blog

De Geest Book Argues Marketing Causes Inequality

Gerrit De Geest of Washington University in St. Louis has written Rents: How Marketing Causes Inequality. Chapter One is available here.  Here is the abstract:

This working paper contains the introduction and first chapter of a forthcoming book on the relationship between marketing and inequality. I argue that the dramatic rise of income inequality since 1970 has largely been caused by advances in marketing. Marketers have become better at creating and exploiting market distortions in legal ways. The legal system, in principle, prevents the deliberate creation of market failures, but it has not evolved at the same speed. Business schools have outsmarted law schools. This chapter offers an introduction to a new, general theory of marketing. Although marketing is meant to improve markets by bringing products to the right customers, it often does the opposite—creating “value” to businesses by making prices less transparent, splitting informed and uninformed consumers, making products incomparable, locking in consumers, exploiting psychological biases, creating network externality effects, or preventing price wars. Over the time span 1970–2015, the impact of marketing on the economy has steadily increased. Few markets have not been turned into less competitive ones by marketers, trained at modern business schools. This has significantly increased the amount of artificial profits (“rents”) in the economy.

Piety Paper: Advertising as Experimentation on Human Subjects

Tamara R. Piety of Tulsa has written Advertising as Experimentation on Human Subjects. Here's the abstract:

Within the industry, it is an article of faith that consumers distrust advertising. One reason for that distrust may be that they fear being manipulated. Yet the debate about advertising and manipulation always seems to revolve around how much manipulation is really going on and whether consumer skepticism ensures that manipulation tactics will likely fail. But consumer skepticism is a flimsy defense in the face of decades of research, ever more sophisticated tactics of persuasion, billions of dollars spent, and data mining capabilities that permit increasingly detailed and granular analysis. The persuasion industry’s tactics are tested in the field, by trial and error. If a tactic works, we get more of it. In this practice we are all the guinea pigs. In a university setting, research on human subjects must be approved by an Institutional Review Board (IRB). The IRB process is supposed to ensure that research subjects’ participation is voluntary and informed, and that the potential benefits of the research outweigh the potential harms. Yet there is no IRB for our present-day marketing environment. What if it is bad for our health? More ominously still in light of recent events, what if it is bad for democracy?

Paper on Advertising's Short-Term Effects

Chen He of the Tilburg Law and Economics Center and Tobias J. Klein of the Tilburg University Department of Econometrics & Operations Research, Center for Economic Research, Law and Economics Center; IZA Institute of Labor Economics; and Netspar, have written Advertising as a Reminder: Evidence from the Dutch State Lottery. Here is the abstract:

We use high frequency data on TV and radio advertising together with data on online sales for lottery tickets to measure the short run effects of advertising. We find them to be strong and to last for up to about 4 hours. They are the bigger the less time there is until the draw. We develop the argument that this finding is consistent with the idea that advertisements remind consumers to buy a ticket and that consumers value this. Then, we point out that in terms of timing the interests of the firm and the consumers are aligned: consumers wish to be reminded in a way that makes them most likely to consider buying a lottery ticket. We present direct evidence that this does not only affect the timing of purchases, but leads to market expansion. Then, we develop a tractable dynamic structural model of consumer behavior, estimate the parameters of this model and simulate the effects of a number of counterfactual dynamic advertising strategies. We find that relative to the actual schedule it would be valued by the consumers and profitable for the firm to spread advertising less over time and move it to the last days before the draw.

Not Even Robocallers Like Getting Robocalls

by Jeff Sovern

On April 18, the Senate Commerce Committee held a hearing on Robocalls. Among the witnesses was Adrian Abramovich, against whom the FCC has filed a forfeiture proceeding in which it seeks a penalty of $120 million. Abramavich, who testified under subpoena, commented that when he receives robocalls, he declines them or doesn't answer the phone. The FCC accuses Abramovich of scamming people, but according to the testimony of NCLC's Margot Freeman Saunders, only two of the top twenty robocallers were considered scammers, based on YouMail's Robocall Index. The leader was Capitol One, Wells Fargo was third on the list, and other well-known financial institutions and debt collectors also appeared.  Law360 has more here, but it may be behind a paywall.

Article on How Different Countries Regulate Food Advertising to Children

Belinda Reeveand Roger Magnusson, both of The University of Sydney Law School have written Regulation of Food Advertising to Children in Six Jurisdictions: A Framework for Analyzing and Improving the Performance of Regulatory Instruments, 35 Arizona Journal of International and Comparative Law (2018).  Here is the abstract:

Childhood obesity is a public health crisis, and globally, at least 170 million young people are overweight or obese. Research identifies food marketing as a key risk factor for childhood weight gain, yet there is significant debate over how food marketing to children should be regulated. This paper analyzes regulatory controls on food marketing in six jurisdictions—the United States, United Kingdom, Australia, Ireland, Canada, and Quebec— with the aim of evaluating whether regulation in each jurisdiction exhibits the features of an effective, transparent, and accountable regulatory regime. These jurisdictions use different forms of regulation to restrict food marketing to children (e.g. self-regulation, co-regulation and statutory regulation), yet research suggests that none have been entirely successful in protecting children from exposure to marketing of unhealthy food. Drawing on the disciplines of public health and regulatory studies, we present a theoretical framework for the design of effective food advertising regulation. We use this framework to evaluate the strengths and weaknesses of regulation in each jurisdiction, and to explain why both public and private regulation has been less than successful in improving the food marketing environment. Our analysis reveals significant loopholes in the substantive provisions of regulatory instruments used to restrict food marketing to children, as well as limitations in the processes of monitoring, review, and enforcement established by each scheme. Our paper concludes by pointing to ways in which food advertising regulatory schemes could be progressively strengthened, including through the use of regulatory “scaffolds” to improve the transparency, accountability and performance of regulatory instruments.

Banks Pay Colleges Substantial Sums in Royalties, Fees, When Students Use Debit Cards, Etc., When Colleges Market Banks to Students

by Jeff Sovern

During the Obama administration, the Department of Education adopted a regulation obliging colleges and universities to disclose their contracts with banks governing marketing to students as well as how much the schools receive from the banks. The WSJ went through those disclosures and reported on their findings in an article, Banks Pay Big Bucks for Top Billing on College Campuses.  Here's an excerpt:

The banks get to set up marketing tables at campus events, advertise their products in mailings to students and are promoted as the school’s preferred banking option.

In return, the banks pay the institutions royalties, sometimes hundreds of thousands of dollars annually and often based on the number of new accounts. Some schools also get paid each time students use their debit accounts, or earn a cut of the ATM fees. * * *

* * * 

Banks and universities say the programs offer an optional convenience, allowing students to link their campus identification cards to banking services.

Consumer watchdogs say a bank’s presence on campus or co-branded marketing materials could lead students to think it is their best or even only option for banking at school.

Robocallers Overwhelming FTC and Do-Not-Call List

WaPo has a report, headlined How robo-callers outwitted the government and completely wrecked the Do Not Call list, reporting that the FTC receives 19,000 complaints per day from people on the Do-Not-Call list about robocallers. The FTC not only does not have the resources to do much about it, but when it tries, its efforts are blocked by spoofing technology. A depressing excerpt:

In the age of live telemarketing, the mere threat of prosecution or penalty was enough to deter companies with shareholders and reputations to protect. In the robo-calling epoch, dialers couldn’t care less. One, nobody knows who they are or where they’re calling from, because they all spoof their numbers. Two, more of them are doing it every year, since it’s cheap and easy to blast out automated calls from anywhere in the world. All this makes it nearly impossible to identify robo-callers, let alone penalize them. At a hearing on robo-calls in October, Sen. Susan Collins (R-Maine) said she was getting so many of them, she’d disconnected her home phone. “The list,” she said, “doesn’t work.”

* * * With an annual budget of $300 million — by contrast, the FBI’s is $9 billion — the FTC is a relatively puny federal agency. There are only 43 employees in the Division of Marketing Practices, which oversees unwanted calls. None of them . . . work full time on the issue. Ami Dziekan, who works in a different department, is the lone steward of the Do Not Call Registry. Since the robo-call ban went into effect in 2009, the FTC has brought just 33 cases against robo-callers. In those cases, defendants have been ordered to pay nearly $300 million in relief to victims, and nearly $30 million in civil penalties to the government. But even then, the FTC can’t force perpetrators to pay the fine if they argue they’re broke. Which robo-callers often seem to be. So the FTC has only collected on a fraction of those sums: $18 million in relief and less than $1 million in penalties.

H&R Block Offering Update for its Tax Software at $24.95 But Others Get the Same Software for $9.95

by Jeff Sovern

A friend forwarded me the two images below.  My friend, a prior H&R Block customer, received the 2017 software update for $24.95 while his son, who has not used the software in the past, was offered the identical

software for $9.95. This type of price discrimination always makes me wonder about whether there is disparate impact discrimination going on; here, for example, the older customer pays more than twice what the younger consumer does.  

Beyranevand Article: Regulating Inherently Subjective Food Labeling Claims

Laurie J. Beyranevand of Vermont has written Regulating Inherently Subjective Food Labeling Claims, 37 Environmental Law 543 (2017).  Here is the abstract:

For many consumers, the modern food label serves as the sole source of information regarding any individual food product. While it may be considered informative in some respects, it is often enigmatic in others. The present debate regarding the creation of a federal regulation to define use of the term “healthy” exemplifies the difficulties associated with seemingly subjective food labeling claims.The law requires manufacturers to include certain facts on food labels. However, they are permitted to include additional voluntary statements related to the healthfulness of the food product, the presence or absence of certain ingredients, and information related to production and growing methods, among other things. These claims have the potential to cause consumers a great deal of confusion, particularly with regard to their veracity. Many scholars have analyzed First Amendment limits on the Food and Drug Administration’s (FDA) ability to restrict specific types of claims, yet few have addressed the issue of whether the agency can and should restrict claims unable to be supported by significant scientific agreement due to the inherent subjectivity of the claim. This Essay proposes FDA adopt such an approach as a means of effectuating the Federal Food, Drug, and Cosmetic Act’s purpose of protecting consumers from false or misleading food product labels. As an alternative, if FDA is unwilling to restrict those claims altogether, this Essay suggests the agency could require curative disclaimers on labels, as they do for qualified health claims, that are not supported by significant scientific agreement.

Times: Consumers May Be More Trusting of Ads Than Marketers Think

Here.  The first three paragraphs read:

The early results from a recent study that Kent Grayson, a Northwestern University marketing professor, did on consumer skepticism left him feeling a little, well, skeptical.

So he ran the trials a few more times. Each time, when participants were asked what they thought of modern advertising techniques, they answered with words like “credible,” “fair” and “good.”

The study, done by Mr. Grayson and Mathew Isaac, a professor at Seattle University, and published in April in the Journal of Consumer Research, surveyed 400 participants regarding 20 common tactics used in television and digital ads. Thirteen of the tactics elicited favorable responses, which surprised even marketers.