Consumer Information and Workability of Competition: a Theoretical Framework

ABSTRACT - This paper deals with the question, whether the usual division of labor between competition and consumer information policy generates but positive effects, by using examples of price surveys and product tests that practice consumer information causes or intensify developments which counteract the common goal of supporting workable competition and improving the consumer's position. Consideration is also given to guidelines for the development of consumer information policy which are compatible with the aims of workable competition.


Gunter Schoppe and Christine Czerwonka (1981) ,"Consumer Information and Workability of Competition: a Theoretical Framework", in NA - Advances in Consumer Research Volume 08, eds. Kent B. Monroe, Ann Abor, MI : Association for Consumer Research, Pages: 374-380.

Advances in Consumer Research Volume 8, 1981      Pages 374-380


Gunter Schoppe, University of Frankfurt/Main

Christine Czerwonka, University of Frankfurt/Main


This paper deals with the question, whether the usual division of labor between competition and consumer information policy generates but positive effects, by using examples of price surveys and product tests that practice consumer information causes or intensify developments which counteract the common goal of supporting workable competition and improving the consumer's position. Consideration is also given to guidelines for the development of consumer information policy which are compatible with the aims of workable competition.


At the time the consumer was declared sovereign, the prevailing opinion was that he himself would best be able to rule his destiny without special assistance. Furthermore, it was felt that treating the consumer as primary would best serve social welfare. No further external interventions seemed to be necessary aside from establishing free markets and guaranteeing far-reaching personal liberty and equal rights for all members of society. Competition vas not only expected to ensure consumer interest in better and reasonably priced goods, but it was also expected to achieve a compromise between conflicting consumer and seller interests.

The implementation of these ideas has resulted in consumer technological progress and a considerable increase in consumer welfare. However, in contrast to it's promises, this development was accompanied by a concentration of economic power, by self-abolition of competition, by a partly disadvantageous technological evolution, and, last but not least, by a growing imbalance between producers and consumers. Search for the causes of these obvious insufficiencies has led to the recognition of a fundamental conceptual weakness of the liberal paradigm, namely that the market system is a vulnerable one and therefore needs organizational management. Thus, the aim to maintain the spontaneous self-controlling mechanism of the market became the guiding principle and led to the establishment and further development of competition policy. However, maintenance of the competitive system was not an end in itself; the ultimate aim was to increase the influence of buyers' interests and to abolish or prevent the predominance of sellers. In German literature this is well documented by such metaphorical slogans as: "Consumers and cartels are contradictions like fire and water; consumers and competition should be as thick as thieves" (Bock 1958, p. 51); "An effective antitrust law is the best consumer protection" (Bock 1958, p. 52); and "A law of this kind is first of all a law for consumer protection'' (Erhard 1957, p. 172).

This intervention on behalf of the consumer represents the first prominent "godfather"; that is, one who takes care of the well-being of consumers by controlling producers' behavior via prohibitive general rules. This sponsor has tended to direct all his efforts -- in the scientific sphere as well as in practice -- towards furthering the development of the existing system of competition norms and the related catalogue of sanctions.

Most characteristic of this sponsor is the fact that, in accordance with the ruling opinion, he claimed an exclusive role and only occasionally accepted the responsibility of other policies, (which in fact had a long tradition in social policy, the predecessor to today's consumer protection). Cases in example are when the "results of unrestricted free choice may be damaging to the individuals concerned or to others" (Hildebrand 1951, p. 22) and when there was the necessity for proper "distribution of scarcity". This claim to a sole agency which was based on a broad consensus originated from the conviction that the realization of consumers' interests, as well as the direction of the economy- would be most satisfactorily guaranteed if the principle of competition was assured by an appropriate economic order. It was well known in this context that, among other things, the degree of competition depends on buyers' information, but, as Scitovsky (referring to Marshall and his contemporaries) has emphasized, one believed that "buyers' information in turn depends on the organization of the market" (1950, p. 48) and, accordingly, would be adjustable by means of public market organization. Both of the assumptions turned out to be false as time went on. However, in spite of this knowledge, no consequences were drawn as far as an extension of the catalogue of competition policy instruments is concerned. The only reaction was to assign occurring problems to the responsibility of others.

The impulse for abandoning an exclusive claim to sponsorship, which opened an "appreciated" field to modern consumer policy, was above all to be found in the debate about "workable competition".

During this discussion, the fact was stressed that, because of increasing product differentiation and other market imperfections (supposedly necessary for the dynamics of competition) one should not expect a given or a growing expertness of consumers (cf. Clark 1968, p. 13-1&). Consumer ignorance (cf. Mitchell 1912, p. 269; Clark 1968, p. 20) would be an invitation to fraud unless adequate counter-measures were taken (Clark 1968, p. 466-467). In addition, their ignorance would prevent satisfactory resources allocation and, at the sane time, would bring the danger of something like Gresham's law becoming operative, whereby these markets might drop to the lowest quality levels (cf. Clark 1968, p. 483). As already mentioned, these insufficiencies were not looked upon as severe challenge by the godfather competition policy. This was probably so, because, at least implicitly, the assumption of a monocausal relationship between market structure and buyers' information was kept up even though attention was more and more directed cowards the interdependences between market structure, market conduct and market performance. Thus, neither the information deficit nor changes in consumers' state of information were expected to cause negative effects. This is a possible explanation for the fact that in modern literature on competition policy considerations of the type of consumer information that would be compatible with the aims of competition policy are missing. There have only been occasional hints that "... measures such as comprehensive grade-labeling..., plus, perhaps, wide public dissemination of product information would be salutory" (Bain 1967, p. 217; Clark 1968, p. 74-77; p. 86-87). This opinion has prevailed despite Scitovsky's (1950) convincingly expressed ideas that consumer ignorance reduces the necessity for price and quality competition, enforces the process of seller concentration and raises barriers to entry which prevent potential competition. However, these are theses which suggest an intensive engagement with questions about adequate means of compensation on the part of competition policy.

Consumer policy is the younger sponsor of the consumer. It is similar to competition policy in that it is a one-sided action-program; however, it differs in that it is not as concerned with problem definition. Consumer policy has, with the help of its advocates in science and policy, not only aimed at improving the position of the individual consumer, who is overstrained in the market, but it has also aimed at achieving social advantages for the economy as a whole. This has been tied to the hint that only intelligent use of free choice can guarantee a selection of the best goods and the most efficient firms and thus lead to optimal allocation of resources (cf. Ferguson at al. 1971, p. 72).

Even after having been accepted as a policy area of high social importance (Kennedy 1962), consumer policy has tended to orient its market-directed actions (like information, advice, and education) to problems of the individual consumer's role rather than towards requirements for the functioning of the overall system. Additionally to this point, with exception of some rudimentary attempts (cf. among others Beem & Ewing 1954; Morris & Bronson 1969; Scherhorn 1977), there has been no result-control.

In exploring these neglects (cf. corresponding criticisms by Day 1976, p. 51; Chestnut 1977, p. 195), essentially two explanations can be found. First, consumer policy is concerned with itself as well as with those problems which arise as questions along the chosen way. Half of these are questions of proving that the consumer is overstrained and thus is not able to play the expected part. The other half is concentrated on description of activities, particularly on attempts to solve problems which are connected with insufficient use of consumer information. Second, this specific way of solving the task can be explained by the interpretation of competition's aim wherein the function of static allocation is dominating, in spite of occasional appreciation of the long-term advantages of the competitive innovation process. This view is closely connected with the conviction that removing information deficits is a problem to be solved separately, and that additionally provided information would automatically increase the efficiency of the competitive system.

This is the point where consumers' "godfathers" meet each other. It is quite understandable that each group looks upon its respective action programs as non-conflicting. This customary division of labor, however, does not necessarily best serve the common task of supporting a functioning competition and of adequately strengthening consumers' positions. When considering specifically Scitovsky's (1950) theses and the fact that consumer information changes the information environment of others too, it seems possible, according to the kind of information diffused, that consumer information might create problems not only for competition policy but for consumer policy as well. This idea suggests that more efforts be directed towards the evaluation and the further development of such instruments, within the frame of consumer research. It is the purpose of the following sections to point to questions which lead in this direction. Starting with a short outline of present consumer information policy in the Federal Republic of Germany (which is similar to American practice), we will discuss possible effects of price information and product tests on competition before questioning whether and to what extent there is a need for change.


The conditions under which consumers make buying decisions are the starting point for considering consumer information needs. These conditions include growing diversity and complexity of products, aggressive and manipulative selling techniques, and, last but not least, consumer deficiencies such as their comparatively small resources and their inability to make reflected decisions about their needs and to achieve a good price-quality relation. Thus, there is agreement that in order to correct consumer disadvantages and the resulting misallocations, the consumer should be given additional objective information, in order "to aid and foster a self-reliant, self actualizing consumer who can make the most of decisions and play an equal role with sellers in the marketplace" (Thorelli & Engledow 1980, p. 9).

However, a good deal of the discussion in the area of consumer research and consumer policy is focused on the question of whether and to what extent information could contribute to the solution of consumer problems. Objections to the information model and the underlying image of the rationally acting consumer overlap with arguments against the corresponding claims of practiced information policy. These arguments include (1) that the provided information is not attained by those social groups who need most assistance; (2) that consumer information hunts a spectre by trying to improve market intelligence in that certain deficiencies are inherent characteristics of the market; (3) that these instruments start at a point where decisions concerning the fulfillment of needs have already been made and, thus, they contribute to the stabilization of existing social consumption patterns; and (4) that cognitive, motivational, temporal and spatial limitations of consumers is a hopeless undertaking since consumer behavior is more guided by hereditary S-R-patterns than by cognitive processes (Kroeber-Riel 1980, pp. 588-611). Ail these objections lead to the conclusion that the concept of consumer information needs to he legitimized. In fact, most of the research effort in the area is directed towards a search for confirmation, whether by discovering imminent efficiencies (e.g. with the help of improved lay-out and stronger incentives for users) or by discovering possibly positive effects on the sellers side which result from the mere existence of consumer information and not from the reactions of consumers. In particular, the discovery of indirect effects, called non-use benefits (Padberg 1977), was a great relief because this made it easier " bear our experience that the published test information usually does not reach those groups who need our special attention as far as consumer policy is concerned." (Neumann 1977).

The perception - or the rediscovery (cf. Beem & Ewing 1954) - of these effects upon suppliers shows an attribute which is very much neglected in the entire discussion: consumer information is a public good in the popular sense and, therefore, becomes known to producers and sellers as well, so it has not only effects on sellers' behavior indirectly through anticipation of possible reactions of consumers (Day 1976, p. 50), but also affects market performance and market structure because of the circular nature of the competition process (Sosnick 1958, p. 387). Consumer information is not only a latter of reactive adaptation but, because of its public character and its predictability, it can be used as an instrument to diminish future competitive pressure and, thus, indirectly change market structure. Both these aspects contribute to the fact that consumer information finally determines conditions of future competition as well as those structures with which consumer will be confronted when they are to make use of their free choice in the future. The same statement is valid for those effects which lead to direct changes in consumers' behavior because they also change producers' and sellers' behavior as well as market performance and indirectly market structure.

In face of these interdependencies, consumer information is likely to create direct and indirect effects on competitive processes. Thus, it seems not to be sufficient to only look for affirming "use" or "non-use" benefits. It can be expected that for an adequate development of consumer information policy the opposite way would be more helpful, namely to look for '"use-" and "non-use" costs'. The latter approach would not only uncover deficiencies and "traps" but would also result in consumer information which is adapted to the claims of workable competition. This approach is developed below.

The starting points of our considerations are two information instruments which are in widespread use in the US and in the FRG: price surveys and comparative product tests. Even though these instruments are essentially alike in both countries (product-related and seller-identifying price information on the one hand; quality ratings, connected with information on price differences on the other hand), the German procedure will be dealt with since it is characterized by peculiarities.

Price surveys as well as product tests are fully or partly financed by public means in Germany. Seventy-five percent of the costs for product tests are covered by the sales of the consumer magazine "test". Regional price surveys are distributed (with a circulation of about 500 - 30,000 samples) among consumers free of charge. They serve, like the "test" - magazine, as a base of information for local consumer advisory services. The dissemination of product test information is not restricted to the 'test' - magazine (circulation in 1980: more than 620,000 samples) but in a condensed form they are published by several other media.

Price surveys are carried out in a selected number of big and medium-sized cities (1979: 35 cities) as a non-disguised survey. The product categories concerned are especially electrical household appliances, audio - and video equipment as well as photographic articles, in some cases even food, detergents, and cleansers. They tend to be well selling brands and models. The results of the surveys are presented in brochures (title: "What to buy where cheapest?") in which, for every included model, the lowest price (optically accentuated), the highest price, the medium price, and the absolute as well as the relative price differences are shown. At the core of the tables is a compilation, specified by models, where the cheapest sellers are listed by name, address, and their demanded price. There is also a notice indicating whether the product was available at the moment of inquiry.

The quality rating published in the consumer magazine "test" is made by the "Stiftung Warentest" on the basis of tests that are carried out externally. "Stiftung Warentest" is a public foundation which is bound by charter provision to "...inform the public about objectifiable characteristics of utility and use-value of goods and services".

The specific organizational structure including controlling and technical bodies (members are sellers, representatives of consumer organizations, and "neutral" persona) implies much more transparency concerning testing intentions and operations than in the case of US-organizations. This transparency is enforced by the early public announcement of tests planned as well as several intended communications with the respective manufacturers. Similar to US-conditions, the tested product samples are limited to a certain number of nation-wide sold models whose market share is more than average. The testing programs are designed by the staff of the "Stiftung Warentest" and discussed by the bodies already mentioned. The same procedure takes place as far as the fixing of rating criteria and chair weights are concerned.

The results are presented in detailed tables, where the separately rated characteristics and the subsumed test rates (five ratings from "very good" to "deficient") are shown. Usually there is a notice referring to minimum "medium" and maximum prices for the model as determined from a separate representative survey. Furthermore, these very detailed results are compressed to a short "compass" where the tested products (classified from the cheapest to the most expensive) are presented together with their most important ratings. In an additional text test results, characteristics, and trends of the concerned product market are explained and hints for adequate produce usage are given.

Comparatively high importance is given (as was found by our own investigations of a two years' edition of the 'test' - magazine) to information about prices, price differences and price trends. Frequently the "Stiftung Warentest" headline stresses the benefits of price active behavior and, in this context especially, the profitability of price comparison. They do not inform however about the dispersion of prices, because it is believed that even these simple diagrams will not be understood by the average consumer (Huttenrauch 1973).


Advice, Direction, and Incentive to Buy by Means of Comparative Testing

As already shown, both comparative testing and price surveys have above all two characteristics in common: information is limited to a sample of renowned, well selling models and they are hardly suited to promote the proclaimed reflection on needs in so far as they are only able to give a certain assistance after the decision about needs has already been made. Comparative tests, however, have more advisory capacity, since they do not directly focus the attention on only one product. But the underlined final test results and price data give rise to a sympathy effect which, last but not least, results in a common desire to be relieved. Therefore, consumer information receives - in contrast to the original intentions - a partly uncritical confidence and works, in connection with the fact of product selection similar to commercial advertising.

Going even further than these directing effects, particularly comparative tests are expected to give buying incentives not only for individual products but also for product classes, because these tests create an effect of attention (especially when there are good rates resulting) and in this way influence decisions for one certain purchase out of many other product alternatives.

Selective Information about Price and Quality as an Investment to Strengthen Seller's Power

The fact that product test information and price surveys report primarily on well-known and widespread trademarked goods intensifies in principle those tendencies which would occur by themselves because of consumers' ignorance (Scitovsky 1950). The sales of large firms and well-known brands - which already serve as surrogate for information signals (cf. Nelson 1976; Spence 1976; Hauser 1979) - are thus promoted (when there are good test rates), whereas small and/or only locally selling firms, as well as newcomers suffer competitive disadvantages. Transmitted by retail's screening, this can in some cases go as far as threatening existence.

In spite of a possible expansion of the evoked set, consumer information makes only insufficient use of the opportunity to stimulate competition among producers. Beyond this, there is a further effect in the field of retail: well-rated products and/or those which are shown as being moderately priced are, so to speak, presold, a fact, which is accommodating big low-price shops and furthermore contributes to retail's concentration because of the regularity of tests and price surveys.

Promotion of Lemon Markets

As already mentioned, consumers' ignorance tends to push away good quality and instead creates so-called lemon markets (cf. Akerlof 1970), if the market mechanism itself does not produce quality discriminating signals and appropriate information is lacking. [This phenomenon has been discussed in economics recently; cf. especially Akerlof 1970; Nelson 1970; Nelson 1976; Spence 1973; 1976; 1977; Rothschild 1973; Hirshleifer 1973; Darby & Karnai 1973; Salop & Salop 1976; Rothschild and Stiglitz 1976; Jaffee & Russell 1976; Hauser 1979.] However, the efficiency of these kinds of signals or respective information depends in how they are perceived. In case they are noticed by only a few segments of the entire consuming public, hybrid forms of lemon - and high quality markets may develop. Both of the phenomena are especially fostered by practiced consumer information which essentially reaches an elite only (Thorelli & Thorelli 1977), by pointing out "better" alternatives to just the quality conscious user only who is able to criticize and therefore initiate his exit (Hirschman 1970). But the majority of immobile consumers might remain loyal to slack firms (the poor pay more; cf. Caplovitz 1963) and secure their existence.

The Influence of Comparative Testing on Entrepreneurial Innovation Activities

It is known at least since the empirical research of Beem & Ewing (1954) that comparative testing (especially repeated testing of the same product classes) and the awarding of discriminating test rates have an influence on entrepreneurial R&D activities, because "...manufacturers begin to act as if this information may be an element in their competition with other manufacturers' (Padberg 1977, p. 9). The test criteria act as a minimum standard: As times goes on, they lead towards quality equalization and they influence methods of and technologies for quality control. They do so, not only after a test but - because of the common early announcements of tests in the FRG - also with respect to future tests. Critical points for the competitive process of innovation are that, on the one hand, they occupy the attention of entrepreneurial R&D activities and also prevent them from looking for alternatives. On the other hand, it is not sure that the quality standards requested by the experts are congruent with those of consumers (Kroeber-Riel 1977, p. 100). Finally, these influences create no pressure for innovation as soon as qualities are standardized. Thus, comparative testing has a tendency to direct innovation, but it is stimulating innovation only within the borders of a given technology.

Promotion of Model Change

The possibility or necessity for model changes are promoted by the now practiced comparative testing, as well as by price surveys - especially for goods which attract a high degree of attention. The latter is the case when tests of a certain product class are often repeated within short intervals of time. In this manner, the personally felt aging of products is increased and therefore increases the desire for replacements. Among other things, this takes place because consumers are often not offered a choice between unchanged and changed models at a price differentiated fully reflecting the cost-saving made possible by sticking to the former, and finally there is neglection of social costs (waste of resources and environment) which are caused by frequent model change.

Price surveys in comparison do not only promote the possibility but even increase the necessity for frequent model change especially for mature and relatively high priced goods. Usually this is true for those products where there is an intensive price competition in agglomerated areas anyhow, which leads to short term price collapses that can only be caught up by price concessions on behalf of the manufacturers. Since this cannot go on infinitely, the way out of this dilemma is a regular change of models, which usually does not mean basic technological change, but which does offer the possibility to raise prices - at least temporarily - and so to warrant "healthy" mark-ups. The predictability of periodical price surveys of many considered products induces especially modern large scale retailers (at least at the time of the inquiries) to cut prices down to a level which is attractive for advertising. So the described process of price collapses and the resulting coercion for frequent modal change are even intensified. In so far as currently practiced consumer information does not only contribute to the planned obsolescence which is so much critizised by consumer policy, it even contributes to tie up resources which then are missing for beneficial innovations and a socially desirable process of R&D.

Consumer Information as Substitute or Supplement of Market Information and Open-Price Systems

There was a discussion about supplier-sided market-information and open-price systems in the US as early as at the turn of the century (cf. Eddy 1913), and about 50 years later a lively debate on their evaluation started in the FRG, in the course of which in view of the requirements of dynamic competition and especially of incentives for competitive initiatives - essentially those conditions were developed as a profile, which would not allow to come to a conclusion about suppliers' and customers' identity or about individual transactions; which must be open to the supply as well as to the demand side; which report on completed transactions only; and which need to fulfill certain requirements as far as minimum-, maximum-, or average prices are concerned. [This corresponds closely to American jurisdiction concerning the Sherman Act Sect. 1; cf. Scherer 1971, p. 450-453.] Likewise relevant for competition as market information - and open price systems is identifying price- and quality information prepared for consumers, because they produce mutual knowledge, the importance of which must be at least looked upon ambivalently. This is immediately understandable as far as identifying price surveys are concerned. Referring to the comparative product tests, this is similarly true. But being a source of information about the quality of competing products, this parameter hardly hinders active competition (cf. Beam & Ewing 1954, p. 117) in as far as the respective information is transmitted with a delay and so the imitation lag, which is necessary for workable competition, remains.

Bias Caused by Emphasizing Price as Competitive Parameter

There is a still increasing discussion going on about competitive effects as well as distortions caused by identifying price comparisons, and about the advantages of test-caused price active behavior. In general, one can expect the permanently repeated advice (in test reports) and the information about low-price sellers which is published in the price surveys to cooperate. One of the crucial points is that for several reasons it cannot be made sure that the consumer actually makes the "best buy" because of his price knowledge. On the one hand, price comparisons usually do not include technologically homogeneous goods (i.e., actual quality information which is necessary for "intelligent buying decisions" should be published too as a premise for "true" price transparency). Since this does not happen, it may remain veiled that the cheaper product is possibly not the one with the more favorable price-quality-relation. On the other hand, identifications directing consumers to low-price-sellers do not necessarily guarantee the realization of good bargains, and they might not even warrant a buying environment which is profitable for all consumers.

On the long run, identifying price surveys are especially advantageous for aggressive distribution system and "sub-marginal" retailers, and in directing distribution structures towards concentration. Transmitted by producers' increasing dependence on retail - which is a result of this concentration - there are feedbacks on the structure of production as well as on product supply itself. In the concrete case of a purchase, they might be favorable to consumers when those skim the cream, but perhaps not when they do all their shopping there. It should be added -at least in the case of complex products - that a buyer who is guided by price surveys could be subject to persuasion in the course of sales talks. He might buy a different product which is calculated more in favor of the seller and which might be cheaper in a different store. It is well known that price information is deliberately used in ads as a flat catcher in order to attract potential buyers. In a recorded case this method was abused to divert buying decisions to more profit-bearing products by means of bonus/malusincentives for salespersons; a case which most probably is no exception.

Reduction of Services and Lowering of "Marginal Morals" in Retail as a Result of Identifying Price Comparisons

"Last week I heard one Lady ask, 'Is this book O.K. for a nine year old?' and the clerk answered, 'Look, Lady, all I know is the list price is $3.50 and our price is $1.98'" (The New York Times, Dec. l, 1961, p. 58, cited by Kahn 1966), p. 34. This example illustrates drastically the effects of structural changes in retail, which are supported particularly by identifying price surveys which increase the normal desire to make good bargains. These structural changes - among other things caused by price policy - are a result both of more favorable acquisition conditions of great distributors and of their neglect of traditional services like qualified advice, free delivery etc., a behavior which can usually be found by "armchair-retailers". Frequently this causes consumers to go to a qualified specialist retailer for advice, but to buy at a low-price shop in order to make noticeable savings. In economics this phenomenon is known as external effect. It is supposed to be one of the reasons for the failure of self-control in free-enterprise systems, in as much as there is no possibility to internalize such effects, which would mean in our case to separately charge these normally cost-free services. As a matter of fact, it would be possible to bring several of these services to an extra account, services which are characteristic for specialized trade and are claimed as being very desirable (cf. Kahn 1966, p. 37). This is not valid for consultancy by specialized personnel, because it is neither possible to tie these services to a purchase, nor can they be redemanded. So they are a quasi-public-good, the provision of which is dependent on the corresponding "part of subsidy" included in the price. Whenever this subsidy can no longer be held up because of the competitive pressure of submarginal traders, the competitors are forced to adjust this marginal behavior. [Such tendencies are imminent to the competition process which is based on enforcement of egoism. On the part of neo-liberal social scientists this has been recognized as a factor which can threaten an effective and (in favor of consumers) veil functioning do-ut-des-principle. This is true whenever the ruling marginal moral is exposed to a submarginal pressure. (cf. especially Briefs 1957; Ropke 1961, p. 145-255)] In reality this results in consumers being left alone if there are no public funded or commercial institutions which offer such services. In either case, the consumer would have to pay for such services.

Status Quo-Oriented Control Effects and Undesired Structural Changes as a Consequence of the Tyranny of Small Decisions

Considering the above impressions in the context, one can find a coherent pattern: On the one hand, its origin is to be found in the perspective of consumer policy which is oriented towards compensation of deficiencies of the present economic situation of consumers and towards an improvements of allocative efficiency. Consumer policy thus intends to contribute to an increase of economic efficiency in general. But - similar to what has been shown by Leibenstein (1966) at the example of allocative efficiency vs. X-efficiency - only marginal improvements could be made in comparison to what could have been achieved by an orientation according to the needs for a dynamic development of economy and society. On the other hand, consumer policy's orientation towards the problems of today, together with the provision of only selective information, may possibly lead to structures - by way of quantitative and temporal cumulation of effects of many (though individually advantageous) "small" measures and decisions - which are less favorable than today's ones, "in the sense that consumers might disapprove of the larger results thereby produced, if they were ever given the opportunity explicitly to vote for or against it" (Kahn 1966).


Starting from the already outlined considerations and observations, the question arises - what kind of a profile a consumer information policy can have that is compatible with the aims of workable competition and which is the starting point for an obviously necessary re-orientation of consumer information. The above referenced deficiencies and "traps" give first hints, in as much as they indicate misdevelopments and possible one-way roads. In addition to a concept of a functionally appropriate consumer policy however, it is necessary to develop positive guidelines.

A first link is the idea, common to practically every concept of workable or dynamic competition, to understand competition as a process in which corporations develop initiative - they cut prices, improve product quality, create new products or processes - and in which imitators push from behind; not immediately (in order to preserve incentives for initiatives), but with not too much of a time lag either, so that the advantage can still he caught up and all the customers benefit from cheaper and better products. This assigns a key position to the tine aspect (i.e. the central problem is to create or to preserve competitive situations (cf. Clark 1954, p. 324-328) so that the effective "imitation-lag" roughly corresponds with the time necessary for initiatives, and to prevent or abolish situations, in which the effective time is either much shorter or much longer than the necessary imitation lag (cf. particularly Prahl 1969, p. 26-48). Whereas in the latter case, which is characterized primarily by dominating positions and barriers to entry, potential competition is to be initiated, the first case is marked by a competitive stalemate-situation that can be found especially in oligopolies with only a few firms, in markets with comparatively homogeneous goods, and where participants are well informed. Such stalemate-situations are not broken up by more transparency however. They are even strengthened. An encouragement for the creation of advantageous big innovations, e.g. by pointing out the respective chances for innovations, would seem to be an adequate way. Consumer organizations could act as intermediating agencies between consumers' needs and possibilities of production. From the point of view of consumer policy, this does not mean that innovative activities should be promoted at any price, but that only innovations with a positive trade-off between an increase in benefits and social costs should be initiated.

Another important aspect for the further development of consumer-information policy results from the necessity to get on distance from the image of the consumer as a selfish permanent-calculator with an irrational passion for rationality and to accept that consumers in a series of decisive situations do not want more intellectual efforts but relief (e.g. Kroeber-Riel 1977, p. 98). This makes sense, because this way the consumer keeps the capacity to continue to develop his needs in other, subjectively more attractive fields.

By using these considerations for the further development of consumer information, at first glance, the moderate transparency stressed by most concepts of workable competition seems to be an important guiding principle which suggests a certain reserve in the provision of consumer information. This may be opportune for some (especially mature) markets, but in many other markets (especially those with high rates of innovation) this will hardly create situations which would end in competition stalemate. Anyhow, the idea of "necessary" deficiencies results from the common perspective that suppliers can only be disciplined by buyers' exit. However, considering the fact that market reality is not only marked by exit, but also by loyalty (in connection with voice as soon as quality is diminished; Hirschman 1970), transparency may be evaluated differently. Voice does not only inform firms about CD and the related reasons, but it even diminishes - loyalty provided - the danger for existence, if such a firm is willing to take the evident chance for increased efforts. Improving the possibilities for articulation and transmitting voice (may be by initiating and evaluating complaints) would be a starting base for activities of consumer organizations which would not conflict with the transparency problem.

In spite of this diminishing of the transparency problem, identifying price surveys without simultaneous quality comparisons seem to be problematic and should be omitted in the frame of consumer information and consumer advice. As long as information about "bast buys" as an instrument of consumer information is continued, adequate advice should be given as far as the implications of price and quality as well as differentiating characteristics of different types of shops are concerned. Easily available and consumer-conscious information about the buying-risks, which are related to individual product classes might be of a much higher value for buyers than regular price surveys, although the information does not give a "product-survey", but it enables one to avoid possible "traps". Adequate starting points for a reorientation of the requested kind are already being developed (cf. Schoppe & Czerwonka 1980, p. 69-70). After their introduction and further development they would be able to contribute to an increase in consciousness of consumers. However, facing scarce resources, it is necessary to set priorities with which the categorization which was introduced by Nelson (1976) in "search-" and "experience qualities" might be of some help. Product classes with a high portion of "experience qualities" which are unveiled to the consumer only by the way of usage and which are reported about only insufficiently by other sources should thereby be preferred.

Considering the further development of comparative product tests, it seems to be urgent on the one hand not only to raise but to lower barriers to market entrance for small sellers and newcomers, and, on the other hand, to improve the chances for product innovation by adequate reports.

It also seems necessary to have a stronger feedback between the choice of product classes, criteria for tests and ratings, and consumers. Only in this manner could it be assured that dynamos of competition would be promoted and that the innovative process receives adequate signals as well as new impulses.

For an improved coordination of test-criteria and their importance to consumers' needs there are two different procedures, which could be tried either alternatively or -possibly - complementary. The first procedure follows the conception of "perceived buying-risk", whereby a non-fixed number of buyers are interviewed about buying-risks with the help of semi-standardized questionnaires. In a second run the so-won risk-catalogue is presented to a random sample of consumers once more, in order to measure the relative importance of risks. In our opinion, this starting base offers a feasible approach for the develop-merit of consumer-oriented product test criteria. Furthermore, it enables one to find out changes in the desired quality standards by way of inquiries, and to feed this information back to producers by means of subsequent comparative tests.

The second method is risk-oriented too, but in this case it is tried to make use of group-dynamic effects by not only inquiring "isolated" consumers about deficiencies and suggestions, but by gathering and inquiring small groups of consumer "experts". In this case too, perceived risks and their relative importance should be evaluated separately in a two stage process. Possibly - at least some experience lead this way - gtoup discussions may contribute not only to summarizing perceived deficiencies, but even to detect uncovered needs (which means desirable innovation in this case) and by doing so give information which could be passed on in the frame or test reports - information which would then become public but nevertheless stimulate competing firms to even more competition about better solutions.


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Gunter Schoppe, University of Frankfurt/Main
Christine Czerwonka, University of Frankfurt/Main


NA - Advances in Consumer Research Volume 08 | 1981

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