Consumer Protection in Economies with Limited Attention

Paul Heidhues (), Johannes Johnen () and Botond Kőszegi ()
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Paul Heidhues: Heinrich-Heine-Universität Düsseldorf
Johannes Johnen: CORE/LIDAM, Université catholique de Louvain
Botond Kőszegi: University of Bonn

No 383, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We investigate the effects of consumer-protection regulations limiting post-purchase harm when there are many markets and consumers have limited attention to examine prices or product features. Such regulation lowers the attention necessary for valuable purchases, which can allow a consumer to purchase in more markets, or serve to induce competition. The first benefit is most important when few markets are regulated, while the second emerges when regulatory scope is sufficiently broad to create “spare” — i.e., in equilibrium unused — attention. Because little spare attention can enforce competition in many markets, consumer welfare can be highly non-linear in regulatory scope. The benefits of regulating a market often accrue in other markets, and there is a sense in which overly tight regulation outperforms overly lax regulation. Broad consumer protection can help the economy reach productive efficiency, and when this is achieved less regulation may suffice.

Keywords: Consumer protection; regulation; competition; participation; limited attention (search for similar items in EconPapers)
Pages: 69 pages
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:383

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