Public Policy Update: Perspectives on the Federal Trade Commission

Kenneth L. Bernhardt, Georgia State University
Ronald Stiff, University of Baltimore
ABSTRACT - This paper presents a summary of a special session devoted to a briefing on current and future developments at the FTC and the role of consumer research at the Commission. Examples of topics likely to be important for consumer research in the future are presented, together with a brief discussion of each of a number of recent research projects.
[ to cite ]:
Kenneth L. Bernhardt and Ronald Stiff (1981) ,"Public Policy Update: Perspectives on the Federal Trade Commission", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 452-454.

Advances in Consumer Research Volume 8, 1981      Pages 452-454

PUBLIC POLICY UPDATE: PERSPECTIVES ON THE FEDERAL TRADE COMMISSION

Kenneth L. Bernhardt, Georgia State University

Ronald Stiff, University of Baltimore

[The views reflected in this summary statement are the views of the individuals participating in the session and do not represent the official views or policies of the Federal Trade Commission.]

ABSTRACT -

This paper presents a summary of a special session devoted to a briefing on current and future developments at the FTC and the role of consumer research at the Commission. Examples of topics likely to be important for consumer research in the future are presented, together with a brief discussion of each of a number of recent research projects.

PURPOSE

This paper presents the highlights from a special session concerning current and future perspectives on the Federal Trade Commission. Participating in the session were Michael Pertschuk, Chairman of the FTC; Robert Reich, Director of the Agency's Office of Policy Planning; and Ronald Stiff, who was Consumer Research Advisor at the time of the session. The session was moderated by Kenneth L. Bernhardt who had served as Consumer Research Advisor at the FTC the previous year.

The session focused on three subjects: 1) what topics are likely to become increasingly important at the FTC in the future; 2) what is the role of research at the FTC, what types of research are conducted, and what have been the successes and failures of consumer research at the Commission; 3) what are some examples of research projects that have been conducted by the FTC.

In sum, the goal of the session was to provide those attending with a briefing on not only what types of research are currently being conducted at the agency, but also to alert researchers to topics that are likely to be requiring consumer research inputs in the next few years. The rest of this summary presents the conclusions offered by the speakers at the session.

FUTURE AREAS OF INTEREST

Six areas were identified as being hot topics for the future. It was emphasized that the FTC was not abandoning its current programs, advertising substantiation for example, but that these are not likely to be the growth areas of the future. The future growth areas which were identified are briefly described below:

1. Credit Programs. Because of the continued importance of credit in inflationary and recessionary times, this should be an increasingly important area for the FTC in coming years. Specific areas mentioned included debt collection practices, balloon payments, deficiency judgments, and the provisions included in the proposed Credit Practices Rule.

2. Comparative Disclosures. The purpose of the comparative disclosures program is to help consumers make better comparative judgments in evaluating product alternatives. Current programs in this area include energy savings comparative disclosures such as the appliance energy labeling program, and the insulation R-value program. The FTC is currently looking at other areas where comparative performance information would be valuable to consumers.

3. Product Quality/Defects. As consumers become more concerned with product quality and as products become more complex, this program should increase in importance. The FTC currently has been investigating product quality concerning housing, automobiles, and heat pumps.

4. Professional Services. For the past four years, the FTC has been studying the marketing and advertising of professional services, and this program is likely to increase in importance in the next couple of years. Specifically, the agency has studied advertising and marketing by opticians, dentists, nurse practitioners, dental hygienists, lawyers, and doctors. The U.S. Appeals Court has recently affirmed the FTC decision in the American Medical Association case which removes the constraints imposed by the AMA, inhibiting doctors from advertising. The FTC is also investigating the business aspects of these professions, including such questions as whether dental clinics can be opened up in shopping centers and what qualifications should be required for ownership of clinics.

5. New Media and Marketing. The FTC is currently investigating the "communications revolution." Such things as videodiscs, videotext, and cable communications should open up whole new areas for FTC investigation. The agency has recently completed a Media Policy Session and report on new media technology and legal change.

6. Energy, Health Care, Transportation, Shelter, and Food. There has been a pronounced shift in the priorities the FTC assigns in evaluating potential new programs. The bulk of the programs in the future will be closely matched to their importance in terms of consumer spending. In other words, the agency will concentrate its efforts on increasing consumer savings in those areas where the potential net benefit is the greatest.

CONSUMER RESEARCH AT THE FTC

The atmosphere for research has changed considerably since the first consumer research study, costing $1200, was funded seven years ago. The current budget contains $1.2 million for research, almost all of which is for consumer research. This amount does not include any funds spent internally for personnel, supplies, travel, etc., but is only the amount spent on external contract research.

The evolving nature of the authorizing legislation has insured that the FTC will continue to engage in consumer research. For example, the 1980 FTC Improvements Act requires considerable economic analysis on proposed and existing regulations, and much of this analysis will be consumer research based. In addition, the political environment is contributing to an increase in consumer research--the agency must be able to defend its actions. Institutionally the agency is committed to do consumer research to help pay attention to the real world affects of its actions. Temperamentally, the agency is ready to accept and use consumer research findings.

Several of the commissioners are now asking consumer research questions of the attorneys when new regulatory programs are being proposed. For example, the questions being asked include: a) what empirical evidence do you have that there is a problem requiring FTC action?; b) what empirical evidence do you have that would indicate that your recommended remedy would actually work?; and c) what empirical evidence are you gathering or have you gathered that will enable us to later evaluate whether or not the remedy is working as intended?

FTC attorneys have become very sophisticated with respect to consumer research. It's not unusual to have discussions at the agency concerning statistical significance, sample size requirements and procedures, regression and other multivariate analysis techniques. Less and less the discussions concern whether or not research is needed. Instead, the discussions center on what research would be most helpful and how to do it.

Consumer research has been helpful in halting programs that research indicated had a low probability of success. For example, a study of detergent buying behavior was done by Joel Cohen and Bill Wilkie showed that even if consumers were given product information indicating parity of performance between major brands and private libels that people would still buy the major brands. The program was eventually halted, at least in part because of the evidence that it would not work.

Consumer research has been used to help formulate programs. For example, focus groups and quantitative follow-up studies were conducted as part of the development of the appliance energy labeling program. The purpose of the research was to measure if consumers could understand the energy information, and to determine which formats among several alternatives were most effective in communicating the information. The research showed that expressing energy usage in dollars was far more effective than using an "energy efficiency ratio" and the final format of the label actually being used was heavily influenced by consumer research.

The identification of needed FTC action has been another result of consumer research. For example, a study of the quality of new homes purchased and experiences of the buyers indicated that defects in new housing were an important problem and that there were some builders who were not resolving problems which had a major financial impact on these consumers. The study also helped identify what the problems were, the magnitude of the consumer injury, and what types of houses had problems. This study thus helped define the nature of the problem, provided direction for possible remedies, and served as a benchmark against which the success of any government action could be later measured.

Consumer research has also been used by the FTC to help identify and prioritize advertising substantiation cases. In several instances, copy tests have been used to determine consumer perceptions of potentially deceptive and unfair advertisements to determine if a case should be initiated against the advertiser.

In spite of the successes described above, there also have been some failures in the consumer research area. The biggest failure has probably been the inability of consumer researchers to adequately explain to Presiding Officers, Administrative Law Judges, and others involved in a proceeding exactly what they have done and why it is appropriate. This inability to adequately explain what was done and why has diminished the value of the research to the decision makers involved.

Another failure of consumer research concerns lapses in the quality of individual studies done for various proceedings. Many consumer researchers have failed to recognize the higher quality standards necessary for studies done in the public arena for public policy purposes. Thus, many studies, with small sample sizes, selected inappropriately, analyzed improperly or with sloppy controls, have been thrown out or given very little weight by the decision makers.

EXAMPLES OF FTC RESEARCH PROJECTS

Many different types of consumer research techniques have been used, including copy tests, experimental design studies, mall intercept studies, consumer mail panel surveys, and random-digit-dial telephone surveys. It has not been possible to engage in test marketing of proposed programs, but in several studies individual states, with regulations similar to those proposed at the national level, have been used as control groups to measure the impact of the programs. Listed below are examples of 16 studies that have recently been completed or are in progress at the agency. The studies represent a diversity of problems and research methodologies, but show the spectrum of the kinds of research being conducted by the FTC.

1. Unavailability of Advertised Specials. A survey of consumers' values of high levels of availability of advertised specials in grocery stores and consumer experiences with unavailability. (Report Released)

2.  STP Corrective Advertising. Measures of consumer and business attitudes toward the company and the product were taken before and after the corrective message. In addition, consumer and business perceptions of the corrective ad were determined after the ad appeared. (Report Released)

3. Warranties Consumer Baseline Study. A survey of a national sample of 4,300 consumers who purchased products with warranties in 1976 was conducted to determine their knowledge of warranties and the use of this information in the purchase decision. (Report Released)

4. Automobile Warranties Content Analysis. This study analyzed the changes from 1967 through 1977 in the content of automobile warranties obtained from automobile manufacturers who had a significant share of the market. (Report Released)

5. Appliance Warranties Content Study. This study analyzed the changes in the content of warranties offered for 40 consumer products in 1978 compared to 1974. (Report Released)

6. Antacid Prospective Study. This project focused on the potential impact of warning messages in antacid television commercials on subsequent consumer behavior with regard to antacids. The study measured the impact of warnings on the target population (e.g., antacid users on a salt-free diet) to see if warnings can be effectively communicated via 30-second TV commercials. In addition, the test measured whether legitimate antacid users (not on salt-free diets) are dissuaded from using the product. Various warning messages, ranging from very specific warnings about antacids to more general warnings (e.g., read the label) were tested to measure their impact. (Report a part of OTC Drug Advertising Staff Report)

7. Appliance Energy Labeling. This is a first part of a study to assess the impact of appliance energy labels on(1) consumer purchasing patterns for appliances, (2) shifting purchases to products which use less energy, and (3) promotional practices of appliance marketers. The data will be used in conjunction with a later study to provide pre-to-post analysis of the effects of the labeling program. (Report Released)

8. Affirmative Disclosures. This project involves assess-ins the effectiveness of recent (since 1970) affirmative disclosure remedies. Past orders will be categorized and analyzed, and the contractor will make recommendations about future affirmative disclosure policy, (Report expected to be released in December 1980)

9. New Housing Construction. This study examines the nature, severity, and extent of defects or problems occurring in new housing. Telephone interviews were conducted with 1,812 home owners who have owned their home for 1 or 2 years. Actual home inspections were conducted for a sub-sample of 299 of the homes to verify consumer reported defects and costs. (Report Released)

10. Listerine Corrective Advertising. This is an analysis of consumer awareness, beliefs, and attitudes towards Listerine and the corrective advertising for the product. Initial measures were taken following the introduction of the corrective advertising campaign. The study will enable an assessment of the effectiveness of the corrective advertising over time. (Report expected to be released in December 1980)

11. Insulation R-Value. This is a baseline study measuring the extent to which consumers understand and utilize R-value information provided as a result of the rule. (Report to be released in December 1980)

12. Eyeglasses Advertising. The Bureau of Economics (BE) conducted a cross-sectional study of the effect of state eyeglass advertising restrictions on the cost and quality of eyeglasses and eye exams. (Report Released)

13. Cooling-Off Rule. This study is a poet-rule evaluation of the Three Day Cooling-Off Period for Direct Sales Rule. The costs and benefits of the rule will be examined A survey of consumers will be conducted to determine their understanding and use of the rule's provisions. A survey of direct selling companies will be conducted to determine the costs of complying with the rule. (Report expected to be released in 1981)

14. Used Car Study. This study is designed to gather baseline data on the used car market so comparisons may be made with data to be gathered in the future. Private buyers and sellers were interviewed via telephone. (Report expected to be released in 1981)

15. Advertising Information Levels. The purpose of this study is to determine how much information and what kind of information television advertising can communicate. A split-cable television system will be used to allow different amounts of information. Recall of information will be tested, (Report expected to be released in 1981)

16. Care Labeling Study. This study will gather baseline data on the extent to which consumers are being harmed by the insufficiency of information related to clothing apparel and textiles. Data will be gathered on the incidence of incorrect washing, drying, ironing and bleaching. This study will also measure the extent to which care and maintenance instructions are overly restrictive. (Report expected to be released in 1981)

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