Comments on Three Papers by Florencia Marotta-Wurgler

Abstract

This comment summarizes and discusses the following three of papers authored or coauthored by Professor Florencia Marotta-Wurgler (ordered by the year of publication): 1 These three closely-related papers deal with an important question that is of interest to academics (especially those in law and economics), policy-makers, and the wider public: what protects consumers from manipulative behavior by firms? More specifically, the papers examine a mechanism that is commonly thought to provide such protection in certain markets. Transactions in many markets are governed by a standard-form contract. This is a contract between two parties, where the terms and conditions are drafted by one of the parties and the other party has little or no ability to negotiate better terms. According to the “informed minority” hypothesis, a firm operating in a market governed by such a contract might be deterred from offering “bad” (pro-seller) terms by the concern that this will lead it to lose “informed” consumers—those who read and understand the contract. The firm thus needs to weigh the costs of improving contract terms against the costs of losing customers. If the share of “informed” consumers is sufficiently high—and under the assumption that the firm is not able to distinguish between the different types of consumers—the firm will offer a contract with “good” terms. In effect, the uninformed consumers in the market rely for their protection on members of the minority who can act upon their understanding of the contract.