MD 2000:4 (”De Agostini”).
Fair Trading Law in Flux?
National Legacies, Institutional Choice and
the Process of Europeanisation
1.Antonina Bakardjieva Engelbrekts. 7
2.Fair Trading Law in Flux? National Legacies, Institutional Choice and the Process ofs. 8
3.Europeanisations. 8
4.© Antonina Bakardjieva Engelbrekt 2003s. 8
5.ISBN 91-7265-751-0s. 8
6.Print: US-AB, Stockholms. 8
Abbreviations of periodicals 10
INTRODUCTION 13
1.Research topic 18 An institutional approach 20 Goals 22 Structure 24s. 74
I STUDYING INSTITUTIONAL CHANGE: ANALYTICAL APPROACH 27
Institutional anaysis in law, social science and economics 27
1.1.1 Institutions and institutional analysis in legal scholarship 27s. 74
2.1.2 Sociological approaches to institutions 29s. 74
3.1.3 Economic theory and institutions 30s. 74
4.1.3.1 From a frictionless world to transaction costs economics 30s. 74
5.1.3.2 Institutional economics 34s. 74
6.1.3.2.1 New Institutional Economics 35s. 74
7.1.3.2.2 Comparative institutional analysis 36s. 74
8.1.3.2.3 Historical institutionalism 40s. 74
The institutional approach in this study 44
1.2.1 Institution-centred perspective: the logic of institutional persistence 44s. 74
2.2.1.1 Formal rules, informal constraints, enforcement 46s. 74
3.2.1.1.1 Formal rules 46s. 74
4.2.1.1.2 Informal constraints 47s. 74
5.2.1.1.3 Enforcement 47s. 74
6.2.1.2 Macro-institutional context as a factor for path-dependence 49s. 74
7.2.1.3 Symbiotic relations and lock-ins 49 2.2 Participation-centred perspective: the dynamics of institutional change 49s. 74
8.2.2.1 The choice between decision-making processes as main element of thes. 74
9.institutional framework 50s. 74
10.2.2.2 The role of interests and distribution of stakes 51s. 74
11.2.2.3 Majoritarian vs. minoritarian bias in the political process 51s. 74
12.2.2.4 Enforcement design 52 2.3 Merging the institutional and the agency perspective 53s. 74
13.2.3.1 The importance of enforcement mechanisms 55s. 74
14.2.3.2 Adaptive efficiency and participation-centred approach 56 2.4 An institutional perspective on European integration 56 2.5 Cross-country comparison of the effects of European integration 58s. 74
15.2.5.1 The purpose of comparison 58s. 74
16.2.5.2 From comparing rules to comparing institutions 62s. 74
17.2.5.3 The institutional approach and theories of legal change 63 2.6 Methodological aspects 65s. 74
18.2.6.1 Methodological intricacies of contextualism 65s. 74
19.2.6.2 The use of the comparative legal method 66s. 74
Fair Trading: comparing the market, the political and the judicial process 69
1.3.1 Fair trading law as a patchwork area in focus 70 3.2 Ensuring fair trading through the market process 73s. 74
2.3.2.1 Information in the market and the market for information 73s. 74
3.3.2.1.1 Information asymmetry 74s. 74
4.3.2.1.2 Information cost 74s. 157
5.3.2.1.3 Information as public good 75s. 157
6.3.2.2 Problem areas 75s. 157
7.3.2.2.1 Free-riding and undersupply of information 76s. 157
8.3.2.2.2 Advertising and opportunistic behavior 77s. 157
9.3.2.2.3 Market institutions to cope with information and uncertainty 78s. 157
10.3.2.3 The potential role of alternative institutional processes 82s. 157
11.3.3 Fair trading in the political process 83s. 157
12.3.3.1 Interests involved: size and distribution of stakes 84s. 157
13.3.3.2 The costs of information and participation 86s. 157
14.3.3.2.1 Risk for minoritarian or majoritarian bias 88s. 157
15.3.3.2.2 Protectionism and paternalism 90s. 157
16.3.4 Fair trading through the judicial or the administrative process 92s. 157
17.3.4.1 Reliance on the judicial process 94s. 157
18.3.4.2 Reliance on the political/administrative process 97s. 157
II NATIONAL PATHS: GERMANY AND SWEDEN COMPARED 101
The roots of fair trading institutions in Germany and Sweden 104
1.4.1 Macro-institutional context 106s. 157
2.4.1.1 Between economic liberalism and interventionism 106s. 157
3.4.1.2 Constitutional constraints 111s. 157
4.4.1.3 The status of private law 116s. 157
5.4.1.4 Interim conclusions 121s. 157
6.4.2 Shaping the institutional framework in Germany 122s. 157
7.4.2.1 The legislative process: evolution and interests involved 122s. 157
8.4.2.2 The substantive rules of fair trading: a general clausea pproach 125s. 157
9.4.2.3 Enforcement design: the primacy of private ordering 127s. 157
10.4.2.3.1 General civil courts as main decision-making institutions 127s. 157
11.4.2.3.2 Generous litigious possibilities for business associations 128s. 157
12.4.2.3.3 Remedies: injunction and damages 130s. 157
13.4.2.3.4 Cost-efficient procedure 132s. 157
14.4.2.4 The Wettbewerbsverbände as beneficiaries from the institutional frameworks. 157
15.132s. 157
16.4.3 Shaping the institutional framework in Sweden 133s. 157
17.4.3.1 Evolution of the legislative process and interests involved 133s. 157
18.4.3.2 Substantive rules: preference for narrowly defined rules 137s. 157
19.4.3.3 Controlled enforcement 140s. 157
20.4.3.3.1 Deciding who decides 140s. 157
21.4.3.3.2 Remedies: emphasis on classical criminal law sanctions 140s. 157
22.4.3.3.3 Conditioned access of business associations to enforcement 142s. 157
23.4.3.4 The shift to self-regulation 143s. 157
24.4.4 The evolving standard of fairness 145s. 157
25.4.4.1 Germany: expansive protection of the competitive ‘status quo' ands. 157
26.‘Mittelstand’ interests 145s. 157
27.4.4.1.1 From individual rights to ‘general interest’ objectives, from monism tos. 157
28.pluralism 145s. 157
29.4.4.1.2 . Fallgruppen( categorieso f cases) 147s. 157
30.4.4.1.3 The standard of fairness in legal doctrine 157s. 157
31.4.4.2 Sweden: restrictive application of statutory rules vs. dynamic evolution ofs. 264
32.self-regulation 162s. 264
33.4.4.2.1 Restrictive interpretation of the unfair advertising clause by the judiciarys. 264
34.163s. 264
35.4.4.2.2 No complementary application of tort law 165s. 264
36.4.4.2.3 Dynamic and balanced practice of self-regulatory bodies 168s. 264
37.4.4.2.4 Legal doctrine 171s. 264
38.4.5 Comparative comments 171s. 264
39.4.5.1 Institutional choice 172s. 264
40.4.5.2 Interests in the political process 173s. 264
41.4.5.3 Enforcement design: the costs and benefits of participation 174s. 264
42.4.5.4 The standard of fairness 176s. 264
43.4.5.5 Institutional trajectories and institutional fossils 176s. 264
44.4.5.6 Institutional symbiosis 181s. 264
The institutional challenge of consumerism: Politicizing private law vs.
depoliticizing public law? 184
1.5.1 The macro-institutional context 186s. 264
2.5.1.1 Between market liberalism, Sozialstaat and social engineering 187s. 264
3.5.1.2 Constitutional constraints 190s. 264
4.5.1.3 The status of private law 197 5.2 The consumerist debate 198s. 264
5.5.2.1 The consumerist debate in Germany 198s. 264
6.5.2.1.1 The political debate 199s. 264
7.5.2.1.2 Legal doctrine 201s. 264
8.5.2.1.3 Institutional implications 205s. 264
9.5.2.2 The consumerist debate in Sweden 205s. 264
10.5.2.2.1 The political debate 205s. 264
11.5.2.2.2 Implications on institutional choice and design 211s. 264
12.5.2.2.3 Implications for legal doctrine 212 5.3 Changing the institutional framework in Germany: incremental change within the institutional core 214s. 264
13.5.3.1 The legislative process: evolution and interests involved 214s. 264
14.5.3.1.1 The 1965 UWG Novelle 214s. 264
15.5.3.1.2 The 1969 UWG Novelle 216s. 264
16.5.3.1.3 The futile reform discussions in the 1970s 217s. 264
17.5.3.1.4 The 1986 UWG Novelle 222s. 264
18.5.3.2 Substantive rules: true vs. false consumer concerns 223s. 264
19.5.3.2.1 The general clause 223s. 264
20.5.3.2.2 Excessive prohibitions of certain promotional techniques 224s. 264
21.5.3.3 Enforcement: the persistence of the choice for private ordering 225s. 264
22.5.3.3.1 The choice between administrative agency and courts 226s. 264
23.5.3.3.2 Right of action of consumer associations 232s. 264
24.5.3.3.3 The cost of prosecution and litigation 241s. 264
25.5.3.3.4 Problems of decentralized decision-making 254s. 264
26.5.3.3.5 Remedies: the debate on damage compensation for consumers 257s. 264
27.5.3.4 Organizations as a bi-product of the institutional framework 260s. 264
28.5.3.4.1 Preserved position of business associations 260s. 264
29.5.3.4.2 Consumer associations as new actors 264s. 264
30.5.4 Changing the institutional framework in Sweden: dramatic change and a news. 346
31.institutional core 267s. 346
32.5.4.1 The legislative process: twists and turns and interests involved 268s. 346
33.5.4.1.1 The Unfair Competition Inquiry Commission (SOU 1966:71) 268s. 346
34.5.4.1.2 The ’velvet revolution* of 1970: marketing a consumer policy issue 269s. 346
35.5.4.1.3 The completion of the regulative framework 272s. 346
36.5.4.1.4 The Guidelines Committee 273s. 346
37.5.4.1.5 Interests in the legislative process 274s. 346
38.5.4.2 Substantive rules: programmatic place of consumer protection concerns 276s. 346
39.5.4.2.1 A consumer-oriented general clause 276s. 346
40.5.4.2.2 Information disclosure 278s. 346
41.5.4.2.3 Special offers 279s. 346
42.5.4.2.4 Annex legislation 279s. 346
43.5.4.3 The design of the administrative process 280s. 346
44.5.4.3.1 Management of the KOV 281s. 346
45.5.4.3.2 Informal procedure and search for voluntary compliance 282s. 346
46.5.4.3.3 Decision-making in individual cases 286s. 346
47.5.4.3.4 Rule-making 289s. 346
48.5.4.3.5 Form of control over agency action 298s. 346
49.5.4.4 Adaptation of the judicial process to the new role of the state 299s. 346
50.5.4.4.1 The design of the judicial process 300s. 346
51.5.4.4.2 Access to the court and costs of litigation 305s. 346
52.5.4.4.3 Remedies: injunctions 310s. 346
53.5.4.5 Institutions as a product of the institutional framework 311s. 346
54.5.4.5.1 The KOV with the KO 311s. 346
55.5.4.5.2 The retreat of voluntary and self-regulatory organisations 312s. 346
56.5.5 The evolving standard of fairness 313s. 346
57.5.5.1 Germany: the persisting prevalence of competitor and Mittelstand interestss. 346
58.313s. 346
59.5.5.1.1 Consumer protection as a recognized ‘Schutzzweck’ in unfairs. 346
60.competition law 313s. 346
61.5.5.1.2 Categories of prohibited unfair practices 315s. 346
62.5.5.2 Sweden: shift towards consumer interest considerations 330s. 346
63.5.5.2.1 The information approach to misleading and comparative advertising 331s. 346
64.5.5.2.2 Information disclosure 334s. 346
65.5.5.2.3 The information approach to sales promotions 334s. 346
66.5.5.2.4 Lagstridighetsprincip: a short-cut to enforcement of paternalists. 346
67.legislation 335s. 346
68.5.5.2.5 Protection of particularly ‘exposed’ consumer groups - sociallys. 346
69.responsible marketing 336s. 346
70.5.6 Comparative comments 337s. 346
71.5.6.1 Institutional choice 337s. 346
72.5.6.2 Interests in the political process 338s. 346
73.5.6.2.1 Germany: preserved dominance of the Mittelstand and minoritarian biass. 346
74.338s. 346
75.5.6.2.2 Sweden: catalytic sub-groups and a majoritarian bias 339s. 346
76.5.6.3 Participation opportunities in the process of enforcement 341s. 346
77.5.6.3.1 Germany: the decentralised private model of enforcement 341s. 346
78.5.6.3.2 The mixed administrative- adjudicative model 346s. 346
79.5.6.4 The standard of fairness revisited 354s. 347
80.5.6.5 The influence of the institutional context 358s. 347
81.5.6.6 Path dependence and institutional symbiosis 359s. 347
III EUROPEANISATION 363
Fair trading in the texture and architecture of Community law 366
1.6.1 Institutional background 368s. 347
2.6.1.1 Between market-building and market-correction policies 368s. 347
3.6.1.1.1 Unfair competition law as part of the European Economic Constitutions. 347
4.368s. 347
5.6.1.1.2 From the neoliberal to the regulatory state 370s. 347
6.6.1.2 Fair trading in the Community constitutional design 374s. 347
7.6.1.2.1 Community vs. Member State competences 374s. 347
8.6.1.2.2 Legal basis for Community intervention 378s. 347
9.6.2 The evolution of positive European fair trading law 382s. 347
10.6.2.1 Between unfair competition and consumer protection (market building ands. 347
11.market correction) 383s. 347
12.6.2.1.1 Unfair competition approach: the Ulmer project (market buildings. 347
13.approach) 383s. 347
14.6.2.1.2 The consumerist approach (market correcting approach) 385s. 347
15.6.2.2 Substance and form of harmonisation of fair trading law (piecemeals. 347
16.harmonisation) 387s. 347
17.6.2.2.1 Misleading Advertising 388s. 347
18.6.2.2.2 Conditional Liberalisation of Comparative Advertising 393s. 347
19.6.2.2.3 Fair trading in the TV-Directive 402s. 347
20.6.2.2.4 Distance Selling Directive 408s. 347
21.6.2.2.5 Fair trading in the E-commerce Directive 409s. 347
22.6.2.3 Enforcement 414s. 347
23.6.2.3.1 Provisions on enforcement in fair trading directives 415s. 347
24.6.2.3.2 Special provisions on cross-border enforcement 425s. 347
25.6.2.3.3 Informal enforcement-facilitating techniques: information, cooperation,s. 347
26.self-regulation 426s. 347
27.6.2.3.4 Targeting Enforcement 429s. 347
28.6.3 Integration through the judicial process 433s. 347
29.6.3.1 Fair trading law and the free movement of goods 434s. 347
30.6.3.1.1 Discriminatory rules on fair trading 436s. 347
31.6.3.1.2 Non-discriminatory rules on fair trading before Keck 437s. 347
32.6.3.1.3 Keck and beyond 440s. 347
33.6.3.1.4 Justifications 443s. 347
34.6.3.2 Fair trading law and free movement of services 447s. 347
35.6.3.2.1 Advertising as a service 447s. 347
36.6.3.2.2 Diverging advertising laws as an obstacle to the free movement ofs. 347
37.services 448 6.4 Institutional implications 449s. 347
Institutional adaptation to European integration: Germany and Sweden
revisited 452
1.7.1 Transposing Community directives: exercises in appropriation of European laws. 347
2.453s. 347
3.7.1.1 Transposition of substantive fair trading directives 454s. 607
4.7.1.1.1 Compliance without change: the Misleading Advertising Directive 454s. 607
5.7.1.1.2 Comparative advertising 466s. 607
6.7.1.1.3 Regulating television advertising with an emphasis on childrens. 607
7.advertising 480s. 607
8.7.1.1.4 Discounts, gifts and other promotional offers 491s. 607
9.7.1.1.5 Protection of the private sphere 496s. 607
10.7.1.2 Changes in enforcement 499s. 607
11.7.1.2.1 Enforcement provisions in substantive law directives 499s. 607
12.7.1.2.2 The Injunctions Directive 500s. 607
13.7.1.2.3 The public/private divide and the evasive scope of national fair tradings. 607
14.law 506s. 607
15.7.1.2.3 Implementing or appropriating European law? 520s. 607
16.7.2 Judicial discourses over national institutional legacies 522s. 607
17.7.2.1 The Verbraucherleitbild debate: a battle over interests or over concepts? 523s. 607
18.7.2.2 Defending the paternalist state 533s. 607
19.7.2.2.1 De Agostini and the Swedish prohibition of children advertising 534s. 607
20.7.2.2.2 Gourmet and the Swedish prohibition of alcohol advertising 535s. 607
21.7.2.3 Institutional implications 542s. 607
22.7.3 European influences in the turbulence of internally generated reform 545s. 607
23.7.3.1 Germany: reform in the shadow of European integration 546s. 607
24.7.3.1.1 The 1994 UWG Novelle 546s. 607
25.7.3.1.2 Institutional interlocking in a multilevel system of governance 555s. 607
26.7.3.2 Changes in anticipation of European integration: 562s. 607
27.7.3.2.1 The legislative process: the 1995 MFL 562s. 607
28.7.3.2.2 Redesigning the administrative process 567s. 607
29.7.3.2.3 Redesigning the judicial process 570s. 607
30.7.4 Actors and organisations involved in enforcement: change or continuity? 582s. 607
31.7.4.1 Germany 582s. 607
32.7.4.1.1 Wettbewerbsverbände on the defensive? 582s. 607
33.7.4.1.2 Strengthened position of consumer organization 584s. 607
34.7.4.1.3 Governmental Consumer Protection Agency? 584s. 607
35.7.4.2 Sweden 585s. 607
36.7.4.2.1 The changing role of the KO 585s. 607
37.7.4.2.2 Consumer organizations as new actors on the stage? 587s. 607
38.7.4.2.3 Competitors and their associations 589s. 607
39.7.5 Comparative assessment 589s. 607
40.7.5.1 . Institutional choice 589s. 607
41.7.5.1.1 Deciding who decides 589s. 607
42.7.5.1.2 Interests in the political process 591s. 607
43.7.5.1.3 Participation opportunities in the process of enforcement 592s. 607
44.7.5.1.4 The standard of fairness 597s. 607
45.7.5.2 Institutional context and path dependence 598s. 607
46.7.5.3 The impact of Europeanisation 600s. 607
47.7.5.3.1 Spheres of influence 600s. 607
48.7.5.3.2 Convergence or divergence in fair trading law 603s. 607
49.7.5.4 Reducing or increasing institutional efficiency? 607s. 607
Peering into the future: towards a European Fair Trading Law? 609
1.8.1 The new Commission proposal on comprehensive Community Fair Trading Laws. 666
2.609s. 666
3.8.1.1 The ideology610s. 666
4.8.1.2 Substantive rules611s. 666
5.8.1.2.1 General clause611s. 666
6.8.1.2.2 Specific rules612s. 666
7.8.1.3 Form of harmonization613s. 666
8.8.2 Enforcement614s. 666
9.8.2.1 Enforcement in the Draft Directive614s. 666
10.8.2.2 The Regulation on Consumer Protection Cooperation616s. 666
11.8.3 Reactions of Governments and stake-holders618s. 666
12.8.3.1 The national institutional actors619s. 666
13.8.3.2 Governments622s. 666
14.8.4 Diversity and unity in a multilevel system of governance623s. 666
IV SUMMARY OF FINDINGS627
1.BIBILIOGRAPHY 637 OFFICIAL DOCUMENTS 662 TABLE OF CASES666s. 666
2.AJCL American Journal of Comparative Laws. 667
3.BBBetriebsberaters. 667
4.Bell J. Econ. &Mgmt Sci. Bell Journal of Economics and Management Sciences. 667
5.CLJ Consumer Law Journals. 667
6.CMLRev. Common Market Law Reviews. 667
7.CR Computer und Rechts. 667
8.DB Der Betriebs. 667
9.DWiR Deutsche Zeitschrift für Wirtschaftsrechts. 667
10.EBLR European Business Law Reviews. 667
11.ELRev. European Law Reviews. 667
12.ELJ European Law Journals. 667
13.ERPL European Review of Private Laws. 667
14.ERT Europarättslig tidskrifts. 667
15.FT Förvaltningsrättslig tidskrifts. 667
16.GRUR Gewerblicher Rechtsschutz und Urheberrechts. 667
17.GRUR Int.Gewerblicher Rechtsschutz und Urheberrecht.s. 667
18.Internationaler Teils. 667
19.ICLQ International and Comparative Law Quarterlys. 667
20.IICInternational Review of Industrial Property and Copyrights. 667
21.Laws. 667
22.IPRax Praxis des Internationalen Privatrechtss. 667
23.JCP Journal of Consumer Policys. 667
24.JZ Juristen Zeitschrifts. 667
25.JLE Journal of Law and Economicss. 667
26.JPE Journal of Political Economys. 667
27.JLS Journal of Legal Studiess. 667
28.JCMS Journal of Common Market Studiess. 667
29.MA Markenartikels. 667
30.MMRZeitschrift für Informations- Telekommunikations- unds. 667
31.Medienrechts. 667
32.MLR Modern Law Reviews. 667
33.RabelsZRabels Zeitschrift für ausländisches und Internationaless. 667
34.Privatrechts. 667
35.REDC Revue européenne de droit de la consommations. 667
36.SSL Scandinavian Studies in Laws. 667
37.SvJT Svensk Juridisk Tidskrifts. 667
38.WRP Wettbewerb im Recht und Praxiss. 667
39.WuW Wirtschaft und Wettbewerbs. 667
40.ZEuP Zeitschrift für europäisches Privatrechts. 667
41.ZRP Zeitschrift für Rechtspolitiks. 667
42.ZUM Zeitschrift für Urheber- und Medienrechts. 667
43.ZvglRWiss Zeitschrift für vergleichende Rechtswissenschafts. 667
44.ZZPZeitschrift für Zivilprozesss. 667
45.U. Chi. L.Rev.University of Chicago Law Reviews. 667
Other abbreviations
1.AFSwedish Advertisers Association (Annonsföreningen)s. 667
2.BGBBürgerliches Gesetzbuch (the Civil Code) BGH Bundesgerichtshof (Federal Supreme Court) ECJ European Court of Justice GG Grundgesetz (Basic Law) ISS Information Society Services MFL Marknadsföringslag (Marketing Practices Act) MP Members of Parliament MD Marknadsdomstolen (Market Court) RF Regeringsformen (Instrument of Government) IKL Lagen med vissa bestämmelsen om illojal konkurenslagen KF The Swedish Cooperative Union KOV Konsumentverket (Swedish Consumer Agency) KO Konsumentombudsman (Consumer Ombudsman) LOLandsorganisationen i Sverige (Swedish Trade Unions. 667
3.Confederation) NDMMarket Legislation Delegation of Swedish Trade ands. 668
4.Industry (Näringslivets Delegation for Marknadsrätt) NOpNäringslivets Opinionsnämnd (Swedish Council ons. 668
5.Marketing Practices) NONäringsfrihetsombudsmannen (Freedom of Competitions. 668
6.Ombudsman) RB Rättegångsbalken (Code of Judicial Procedure) SACOSveriges Akademikers Centralorganisation (Swedishs. 668
7.Confederation of Professional Organisations SAF Swedish Employers’ Association (SAF) SISveriges Industriförbund (the Federation of Swedishs. 668
8.Industries) SKFFederation of Swedish Retailers (Sverigess. 668
9.Köpmannaförbund) SkiSSveriges Konsumenter i Samverkan (Swedish Consumers. 668
10.Coalition) SKR Swedish Consumers’ Asscoiation SRFSveriges Reklamförbund (Advertising Association ofs. 668
11.Sweden) TDG Teledienstengesetz (Act on Telecommunication Services) TF Tryckfrihetsförordning (Freedom of the Press Act) TCOTjänstemännens Centralorganisation (Confederation ofs. 668
12.Professional Employees) TU Svenska Tidningsutgivareföreningen UWGGesetz gegen den unlauteren Wettbewerb (Act Againsts. 668
13.Unfair Competition) UWG-EEntwurf eines Gesetzes gegen den unlauteren Wettbewerbs. 668
14.(Draft Act Against Unfair Competition) YGL Grundlag om yttrandefrihet ZPO Zivilprozessordnung (Code of Civil Procedure) ZAWZentrale Ausschuss der Werbewirtschaft (Central Board ofs. 668
15.the Advertising Industries)s. 668
16.13s. 670
INTRODUCTION
1.The law of fair trading belongs to one of the first realms of economic legislation to arise in the early industrial state. Already in the middle of the 19th century, soon after the establishment of the principle of laissez faire across Europe and after the breakthrough of free trade, the first rules on fairness of commercial conduct took shape under hardened conditions of competition.1 In some countries, like France, these rules emerged as a result of creative judicial interpretation of existing general tort law clauses. In common law countries protection against acts of unfair competition was granted restrictively on the basis of specific nominate torts. In other countries, notably Germany, special statutes on unfair competition were enacted, the first one dating from 1896 and the second one, valid even today, as of 1909. Irrespective of national idiosyncrasies of legal technique, there was much in common between the different approaches as far as protected interests, purpose and scope of legal rules were concerned. At the centre of attention was protection of the individual trader against unfair methods of competition. There was a relatively broad consensus as to the factual situations to be addressed: The honest trader was not to denigrate the goods and commercial activities of his competitor. He was to rely on his own achievements and not to engage in confusing imitation of goods or commercial activities. He was not to steal the commercial secrets or to induce breach of contract.2 The French concept Concurrence déloyal" neatly illustrated the element of moral disapproval towards these disparate categories of conduct, and acquired international acceptance. The general orientation of this area as belonging to private law, a sort of extension of tort law into the sphere of economic competition, and which was enforceable upon private action by affected competitors, also provided a common denominator between different national approaches. These developments prepared the ground for early international codification of unfair competition law into Arts. 10 bis and 10 ter of the Paris Convention on the Protection of Industrial Property of 1883.3 Almost a century later, the consumer movement of the 1960s and 1970s troubled the otherwise peaceful waters of national unfair competition (fair trading) law. Under real or potential pressures from consumer groups all modern regulatory states undertook some action to integrate the consumer interest into fair trading law. The fact that consumers were indirect beneficiaries from the enforcement of unfair competition laws was generally recognised. Yet the consumerist movement called for broader standards of deception and fairness, demanding that the specific interests of consumers explicitly be taken into account. More importantly, in a dramatic fashion it challenged the institutional and procedural landscape of fair trading law across Europe. News. 670
2.14s. 671
3.institutional arrangements and procedural avenues for giving voice to the consumers. 671
4.interest were deemed necessary.s. 671
5.In respect to institutional and procedural devices the response to similar consumerists. 671
6.pressures produced strikingly different results. Roughly speaking, whereas somes. 671
7.countries found it necessary to actively involve the state in the protection of thes. 671
8.consumer interest in fair trading, others opted for the preservation of the private-laws. 671
9.character of this legal field. In the first category of countries special public agenciess. 671
10.were empowered to act as champions for the consumer interest. In the latter categorys. 671
11.of states it was preferred to entrust the consumer interest into the hands of consumers. 671
12.organisations, while at the same time relying on an indirect beneficial effect fors. 671
13.consumers from competitors’ suits on unfair competition grounds. Within the confiness. 671
14.of this dichotomy a whole myriad of regulatory and enforcement techniques weres. 671
15.introduced, with significant variations in the detail.s. 671
16.It was these two basic models and the attendant patchwork of divergent national legals. 671
17.and institutional approaches that in the 1970s formed the background for the firsts. 671
18.efforts at harmonisation of fair trading law in the - then much smaller - Europeans. 671
19.Economic Community. Already at the beginning of the 1960s an ambitiouss. 671
20.comparative study of unfair competition laws across Europe was commissioned to thes. 671
21.Max Planck Institute of International and Foreign Patent, Copyright and Competitions. 671
22.law under the guidance of Prof. Eugen Ulmer.4 The project culminated in as. 671
23.comprehensive proposal for harmonisation of unfair competition law in Europe in thes. 671
24.form of a convention based on a general clause on fair trading. The failure of theses. 671
25.early and ambitious attempts to create a common unfair competition law for Europe iss. 671
26.notorious. Different authors ascribe it to different factors, but among the reasonss. 671
27.indisputably are England’s and Ireland’s accession to the Community and theirs. 671
28.diverging view on the limits and tasks of unfair competition law.5 Another majors. 671
29.development was the already mentioned consumerist wave and the growing ambitionss. 671
30.of the Community to take an active stand on this topical subject.6 Thus the onlys. 671
31.outcome of the harmonisation attempts was the Misleading Advertising Directive ofs. 671
32.1984 applying a minimum harmonisation approach.7s. 671
33.Meanwhile the situation appears to have changed significantly. Although fair tradings. 671
34.law cannot claim central importance to the European project, as an area with clears. 671
35.economic implications, it has been exposed to growing influence by both positive ands. 671
36.negative integration.8 The record of Community acts related to fair trading has becomes. 671
37.ever more impressive. It suffices to mention the Misleading and Comparatives. 671
38.15 Advertising Directive,9 the Television Without Frontiers Directive10, the Distance Selling Directive11 and the recent E-commerce Directive12 in order to recall that by now important general aspects of fair trading as well as marketing in the most significant media are objects of European legislative initiatives.13 Moreover, a large number of Community acts govern advertising and marketing in separate industry sectors, like foodstuffs, medicinal products, cosmetics, tobacco, etc.14 Finally, the Injunctions Directive of 1998 marked the first European agreement on harmonisation, or rather on mutual recognition, of enforcement devices in the consumer protection field, including enforcement of harmonised fair trading rules.15 The success of the harmonisation initiatives and the overall significance of European influences on national fair trading law have been differently assessed in the literature and have, moreover, changed course in pace with legal and political developments. The initial reactions to harmonisation were sceptical. Legal scholars and policy makers viewed the Misleading Advertising Directive as remaining wreckage of a crashed ship, and predicted a limited role for the Directive’s provisions for national law.16 With more national adjustments set out to implement the Directive being reported, the assessment has become more balanced.17 But on the whole harmonisation was regarded as modest. Community acts of more recent date, applying techniques like exhaustive harmonisation and reliance on a country of origin principle, have been seen to adopt a more powerful and effective harmonisation approach. They have, however, been criticised for the poor normative quality of their provisions or questioned in terms of their legitimacy.18s. 672
39.16s. 673
40.The impact of negative integration on national fair trading laws and practices produceds. 673
41.a livelier response than that of harmonisation. Following an expansive course ofs. 673
42.interpretation of the Community rules on free movement, the European Court ofs. 673
43.Justice (ECJ) frequently questioned the legitimacy and blocked the application ofs. 673
44.national fair trading rules and regulations. Also here the path has been uneven ands. 673
45.subject to controversial evaluation in legal doctrine. Originally Art. 28 (ex Art. 30) ofs. 673
46.the Treaty of Rome was considered applicable solely to discriminatory nationals. 673
47.measures on advertising and marketing.19 With the advance of the ‘mutual recognition’s. 673
48.approach in the late 1970s, the Court felt authorised to apply the Cassis de Dijon20 lines. 673
49.of reasoning also to indistinctly applicable marketing measures. Starting with thes. 673
50.Oosthoek21 judgment and notably in the GB-INNO ruling,22 the Court repeatedlys. 673
51.qualified also non-discriminatory marketing measures as potential barriers to trade,s. 673
52.justifiable only under the narrowly construed public interest considerations 'à las. 673
53.Cassis'.s. 673
54.This aggressive line of judicial interpretation triggered serious processes of rethinkings. 673
55.national fair trading laws in at least some Member States of the Community.23 In legals. 673
56.doctrine a heated discussion on the constitutional legitimacy of Community influences. 673
57.on national fair trading law was launched, touching upon issues like division ofs. 673
58.competencies and choice of appropriate decision-making forum.24 A significant turn ins. 673
59.these developments was marked by the Keck25 decision of the ECJ. Advertising ands. 673
60.marketing were explicitly qualified as ‘selling arrangements’ that as a rule should falls. 673
61.outside the scope of Art. 28 (ex Art. 30) EC Treaty and of the ‘Cassis de Dijon’ test.s. 673
62.The question about the reach of this new principle is, however, still far from settled,s. 673
63.especially in the light of the constant influx of new case law and the increasings. 673
64.importance of the Community provisions on free movement of services. News. 673
65.judgements from Luxembourg continue to challenge the ability of national legals. 673
66.systems to cope with uncertainty as the recent Gourmet ruling has demonstrated.s. 673
67.Despite these sometimes surprising twists and turns in Community law and practices. 673
68.and the corresponding fluctuations in scholarly opinion, there is a growing consensuss. 673
69.that European integration has exerted and continues to exert major impact on nationals. 673
70.fair trading law. Nowhere else has this view received more attention than in Germans. 673
71.legal doctrine. Dozens of scholarly articles and a number of monographs have tackleds. 673
72.the issue.27 Legal doctrine in other Member States has not dealt so intensely with thes. 673
73.question, but there is general recognition that European law and institutions constitutes. 673
74.17 important factors in modern development of national fair trading law.28 Especially in the light of recent revitalisation of the idea of a general legal framework of fair trading law authors and policy-makers now explicitly refer to a process of Europeanisation of fair trading law.2 Opinions diverge when it comes to the legitimacy and desirability of this trend. Quite in the spirit of Ulmer, a number of scholars see fruitful soil for further harmonisation of fair trading law for Europe. They express regret at the failure of the first systematic attempt at harmonisation and are inspired by new all-embracing proposals that aim at a comprehensive solution through a general clause and will mitigate national divergences and idiosyncrasies?0 In the opposite camp are those who doubt the feasibility of such harmonisation and fear disruptive repercussions on the coherence of national legal and institutional frameworks. At a different level, the debate is even more heated when it comes to assessing the legitimate scope and desirable method of harmonisation. Also here opinions can be classified on a wide scale from principled opposition to harmonisation to moderate concerns regarding the normative quality of European compromise solutions31 or the policy effects from the selected method of harmonisation. Applying the home country control principle without comprehensive harmonisation of substantive standards is the source of one such concern.32 The debate on the European influences over national laws is by no way unique for the area of fair trading law. The pervasive influence of European integration on law, policy-making and institutions of the Member States has been at the centre of a long standing and intense discussion in both legal and social science. Already in the early stages of European integration, the doctrines of direct effect and supremacy of Community law suggested the powerful potential of the European project to profoundly affect national law and regulative policies. Whereas the focus initially was on the abolition of technical barriers to trade and on shaping of Community competition law - activities firmly anchored in the Founding Treaties - more recent years have witnessed an expansion of European integration to ever wider areas of social and economic regulation and, importantly for this analysis, to core areas of private law and procedural law.33s. 674
75.18s. 675
76.As in fair trading law, reactions in the field of private law have been mixed, to say thes. 675
77.least. There is disagreement on the question of scope and depth of European influences. 675
78.as well as on its normative evaluation. A number of private law scholars simplys. 675
79.neglect European law. Taking a narrow view of private law as well as ofs. 675
80.Europeanisation (equating the latter with harmonised law), these scholars point at thes. 675
81.lack of comprehensive Community acts in the field of core private law areas such ass. 675
82.contracts, torts, property, inheritance and family law. Such ‘reductionism’ thens. 675
83.justifies a disinterest in European law developments.34 Another group of scholars, ins. 675
84.contrast, regard European law with its insistence on private autonomy and economics. 675
85.freedom as an ultimate acknowledgement of the supremacy of private law in thes. 675
86.national legal order. In this view European integration ‘has constitutionalised as. 675
87.private-law society’ with supremacy over national states.’35s. 675
88.Similar divergences are exhibited on the issues of the normative evaluation of thes. 675
89.European influence and the desirability of further integration in the area of private law.s. 675
90.On the one hand, legal historians and comparative lawyers have advanced ans. 675
91.optimistic view, where European integration is perceived as a welcome chance to builds. 675
92.a common European Civil Code and thus to make old ius commune dreams comes. 675
93.true.36 Others regard it as a return to the ‘common core’ of European private law.37s. 675
94.Again, from a comparative law perspective many private law scholars have expresseds. 675
95.concerns as to the disintegrative impact of European influences on the coherence ofs. 675
96.the national legal system and in particular of private law. It is being pointed out thats. 675
97.Community measures are often incidental and piecemeal. Consumer policy measuress. 675
98.in particular are said to have the form of a patchwork of detailed provisions attacheds. 675
99.artificially and standing as a foreign body in the otherwise well established ands. 675
100.coherent system of national private law, precedent and doctrine.38 Finally, comparatives. 675
101.lawyers of a post-modernist orientation tend to question the feasibility of grands. 675
102.European harmonisation projects. Some postmodernists refute the possibility of as. 675
103.common and harmonised European private law due to insurmountable divergencess. 675
104.between the legal cultures of individual states.39s. 675
105.19 Research topic This study purports to take a fresh look at the impact of European integration on national law by examining the case of fair trading. In the immediate focus are the fair trading laws in two Member States of the European Union (EU), namely Germany and Sweden. There are two components to this study. On the one hand it consists of an in depth comparison of the main features of the institutional frameworks of fair trading law in these countries, with an emphasis on institutional choice and enforcement design. The other component of the study is concerned with the influences of European integration on the institutional framework of national fair trading law in the two legal systems. When I use the term institutional choice I mean the choice between market, political process (legislative and administrative process) and adjudication for dealing with the particular regulative issues associated with fair trading. This fundamental choice is exercised differently in the two countries under analysis, depending, among others, on constitutional law and institutional tradition. In Sweden the emphasis is placed on the consumer interests in fair trading. Thereby, the state has been assigned an active role in protecting consumers against improper and unfair marketing practices. Confidence has been vested in the political process and in specialised public agencies, a Consumer Agency and a Consumer Ombudsman, to shape and enforce the standards of fair trading. Germany is by contrast a prominent example of a country that has consciously avoided setting up new public authorities and bodies. Instead the preference has been for private ordering, building on civil procedure and relying on private consumer and business organisations and on ordinary courts for enforcing the rules against unfair competition. Given the fundamental differences in institutional choice and design, the question of the feasibility of harmonisation projects in this area of law will be addressed. The concept of fair trading law is in the following used as a broad description of rules and regulations that govern marketing practices with the aim of protecting the interests of competitors, consumers and the general public.40 Domestic terminology (e.g. ‘unfair competition law’ or ‘marketing practices law’), national classifications of these rules as belonging to criminal, civil or administrative law, and doctrinal views on their systematic unity or disparity, are thereby of secondary importance. The law of fair trading, even when treated in a strictly national context, is often described as an eclectic area, gathering under one roof different conflict situations and responding to disparate interests and policy concerns.41 Here belong rules on such diverse phenomena such as slavish imitation, misappropriation and disparagement, misleading advertising and comparative advertising, free gifts, rebates and season sales, trade secrets and the bribing of employees. In functional terms a common denominator for many of these disparate rules can be found in that they address commercials. 676
106.20s. 677
107.communication.42 The focus in this study will be on rules governing commercials. 677
108.communication in the pre-contractual sphere.s. 677
109.The use of ‘fair trading’ as a unifying concept in this study is motivated by twos. 677
110.factors. On the one hand, there is the desire to avoid concepts that are specific for ones. 677
111.of the countries under analysis and will thus be coloured by the historical ands. 677
112.institutional environment in this particular state.43 On the other hand, one of mys. 677
113.ambitions is to trace the process of Europeanisation. In recent preparatory work ats. 677
114.Community level, the concept of fair trading has been used to denote the area ofs. 677
115.harmonisation. The latest developments in harmonisation seem to support a renamings. 677
116.of ‘fair trading’ to ‘fair trade practices’ law. This only comes to underscore the volatiles. 677
117.character of the area and the difficulty to introduce and sustain clear ands. 677
118.internationally accepted concepts.s. 677
119.There are several factors that make the area of fair trading particularly interesting fors. 677
120.analysis of European influences on national law. As stated above, the law of fairs. 677
121.trading has a relatively long history, dating back to the second half of the 19th century.s. 677
122.Although not of the same seniority as classical private law disciplines like torts ands. 677
123.contracts, it is intimately related with these core areas of private ordering. This allowss. 677
124.us to test propositions about the persistence of deeply embedded national institutionals. 677
125.constraints and their restraining effect on processes of legal change and ofs. 677
126.Europeanisation in particular.s. 677
127.Secondly, fair trading is notoriously stretched between private ordering and publics. 677
128.regulation. Ever since the intellectual ideas of consumerism received wider recognitions. 677
129.in modern welfare states, the protection of diffuse consumer interests has been at leasts. 677
130.nominally recognised as a policy objective beside the protection of individuals. 677
131.competitive interests. Divergent national choices of enforcement procedures, ands. 677
132.institutional structures to account for collective interests, reveal shifting conceptions ofs. 677
133.the role of the state in the market economy and the dividing line between public ands. 677
134.private. Finally, laying down standards of fair trading in unambiguous legislatives. 677
135.provisions has been a notoriously elusive enterprise. As a result, concrétisation of thes. 677
136.standards has been shifted to alternative decision-making institutions, like the courts ors. 677
137.administrative agencies. The choice of enforcement designs has thus not merely been as. 677
138.technical matter, but has had major impact on the effectiveness and the ideology of thes. 677
139.regulative system.s. 677
140.Because the mix of interests and policy objectives integrated in national fair tradings. 677
141.laws is so eclectic and procedure and enforcement design play a decisive role,s. 677
142.harmonisation at the European level has been a difficult task. In normative terms, thes. 677
143.objective of convergence never had a clear appeal. The precise impact ofs. 677
144.Europeanisation on national fair trading law and the desirability of furthers. 677
145.harmonisation have been subjects of controversies at both doctrinal and policy level.s. 677
146.This calls for closer empirical study of the effects of harmonisation and for findings. 677
147.21 more rigorous criteria for a normative evaluation of the impact of European integration on national law.s. 678
AN INSTITUTIONAL APPROACH
1.Legal analyses of European influences in the area of fair trading law have traditionally focused on changes in domestic statutory rules. Such approaches are of course fully legitimate if the focus is on dogmatic (re)systematisation of domestic law in a narrowly defined legal context. Yet, there is a growing consensus that European integration affects national legal systems in complex and less conspicuous ways. It exerts influence on the macro-level of constitutional law and jurisprudence, on institutional structures and procedures as well as on the expectations of actors about the law and about their legal positions. Legal science alone can hardly provide the appropriate tools for describing and explaining these phenomena. I therefore advocate the use of alternative, institutional approaches to the study of Europeanisation in order to capture and conceptualise these otherwise ‘invisible’ processes of legal change. The theoretical premises of an institutional approach will be developed in subsequent chapters. Here it suffices to say that the approach is inspired by the already classical contributions to institutional economic theory referred to as ‘neo-institutionalism’. On a micro-analytical level I follow a theoretical string in law and economics that has become known as comparative institutional analysis. The concept ‘institution’ is used in this theory as well as in much general economic theory in a very broad sense referring to the market, the political process and the courts. Whether to defer certain social problems or goals to the free play of market forces, to rely on private adjudication or to seek solution through the political process, including direct regulation and agency involvement, is at the heart of much political and legal decision making. Theorizing in this vein, comparative institutional analysis insists that institutional choices should be based on a careful comparison between the relative advantages and disadvantages of each alternative. As a main factor for this comparative evaluation one should consider the costs and benefits of affected actors for participation in the respective decision-making process, i.e. transaction costs, litigation costs and costs for political participation. The approach is therefore also called participation-centred.44 On a macro-analytical level, the participation-centred approach is complemented with a historical institutional perspective as advanced by economic historian Douglass North. Historical institutionalism highlights the role of institutions as humanly devised constraints, whose main function is to reduce uncertainty by providing a structure to everyday life.45 Institutions thus include formal legal rules, but also informal constraints (such as ideologies and customs) and the enforcement characteristics of both.46 North highlights institutions’ propensity to persist over time. Institutional paths may be followed not because they are efficient but because their change is costly.s. 678
2.Moreover, institutions tend to produce incentives for the creation of organisations,s. 679
3.which then depend on the institutional framework and contribute to the latter’ss. 679
4.stability (institutional symbiosis). A historical institutional perspective demonstratess. 679
5.that institutional choice is contingent on a historical and institutional context that hass. 679
6.been shaped through time and is generally resistant to change.s. 679
7.The concerns underlying historical institutionalism and Komesar’s participation-s. 679
8.centred approach may be said to converge in the category of adaptive efficiency, useds. 679
9.by North. Adaptive efficiency is a category that supposedly applies to normatives. 679
10.evaluations of a variety of institutional frameworks. According to North, adaptives. 679
11.efficiency “provides incentives to encourage the development of decentraliseds. 679
12.decision-making processes that will allow societies to maximize the efforts required tos. 679
13.explore alternative ways of solving problems”.47 Arguably by eliciting participation ass. 679
14.a central factor for institutional choice Komesar suggests one way of encouraging suchs. 679
15.decentralised decision-making processes. Originally developed as a concept ofs. 679
16.economic theory, adaptive efficiency may equally well relate to established categoriess. 679
17.in constitutional theory, such as representative democracy and access to justice. It iss. 679
18.this link between economic, political and legal theory that, I would submit, makess. 679
19.institutional analysis potentially promising for the study of law.s. 679
20.European integration impacts all levels of the institutional framework, changes formals. 679
21.rules as well as shapes new enforcement possibilities and decision-making fora. Mores. 679
22.importantly, it provides new actors and organisations access to national decisions. 679
23.making processes and thus helps slowly undermine existing attitudes and ideologies.s. 679
24.In effect, European integration may break or at least destabilize symbiotic relationss. 679
25.between national institutional frameworks and organizations. Such wider implicationss. 679
26.can be studied only by looking at the national institutional frameworks in their richs. 679
27.complexity.s. 679
28.Another feature that distinguishes this study from previous analyses ofs. 679
29.Europeanisation of national law is the option for a comparative perspective. Thiss. 679
30.choice is motivated by a desire to draw more general conclusions about the effects ofs. 679
31.European integration on national law, over and beyond national idiosyncrasies. Thes. 679
32.choice of countries has been motivated by a variety of factors. Both Germany ands. 679
33.Sweden have had a long record of active implementation of fair trading law and prides. 679
34.themselves on the high level of protection of the affected interests. At the same time,s. 679
35.the two legal systems represent two distinct ideal types of institutional responses tos. 679
36.fair trading on the two far ends of the scale between public and private ordering.s. 679
37.Whereas Germany chiefly relies on market-oriented private law enforcement, Swedens. 679
38.provides an example of active public involvement in fair trading with the purpose ofs. 679
39.protecting the consumer interest. Comparative reflections on the two jurisdictions ares. 679
40.in my view facilitated by the fact that they belong to the Continental legal family, in as. 679
41.broad sense.48 The substantive rules on fair trading are not dissimilar to the point ofs. 679
42.significantly complicating an assessment of the impact of institutional factors.s. 679
43.23 Most importantly, both Germany and Sweden are members of the EU. They are bound by the Community ‘acquis’ and are directly exposed to the influence of European integration in many other important respects. Finally, the two countries have taken a high profile in the legislative and policy debate associated with fair trading. German and, more recently, Swedish political representatives, interest groups and experts have arguably been among the most active opinion-builders in the ongoing discussion about the future harmonisation of fair trading law in Europe. Thus, a comparative study may hopefully provide some clues as to the pitfalls and promises of Europeanisation in this area.s. 49
GOALS
1.The study has three more specific research goals: The first goal is to provide a dense account of the evolution of national fair trading laws in the two European countries under analysis. By tracing two distinct paths of legal and institutional development I seek to illustrate the problems of institutional diversity and ‘path dependence’49 that arguably plague attempts at closer European integration. National approaches to fair trading regulation differ in their reliance on the market, the political (administrative) process or the courts, each viewed as a complex decision-making institution. Divergences in institutional choice account for different enforcement procedures and for different actors and organisations having an opportunity to influence the emerging standards of fairness. These distinctive institutional features are rarely arbitrarily formed, but often become firmly embedded in a broader institutional environment of formal rules and less palpable informal constraints, such as economic ideas, constitutional and private law doctrines and ideologies. Legal change is consequently viewed as an incremental process, resulting from the tension between the dynamic of changing interests and preferences of affected actors and the constraining effect of institutional legacies. The second goal is to explore, in a comparative setting, the relative advantages and disadvantages of government intervention and private ordering as two distinct avenues for enforcement of fair trading law. In a time of deregulatory pressures the performance of public bodies of all kinds has increasingly come under fire, accused as the source of multiple regulatory failures and inefficiency. It is therefore worth asking whether governmental agencies in the area of fair trading offer any comparative advantage in the enforcement of fair trading laws seen against the background of existing private means of enforcement. A large number of Central and East European States have in the last decade opted for regulation of fair trade models which rely substantially on the involvement of public agencies. Indeed, such trends are not foreign to some Member States of the European Community. Are these institutional choices misguided? And is a model of restrained, informed and efficient action on the part of regulative agencies sustainable? A comparative study of European fair trading laws can arguably provide rich soil for reflections on the pros and cons of alternative enforcement mechanisms as explicitly in this area many arguments have been brought in defence of private ordering and enforcement. The mere fact that a number of important jurisdictions (such as that ofs. 49
2.24s. 50
3.Germany) still remain satisfied with basically private law means of enforcement of fairs. 50
4.trading rules is already sufficiently provoking. It calls for substantial justification ofs. 50
5.the very existence of public agencies and public enforcement in this field, let alone thes. 50
6.setting up of new ones. In any case there is a need for clear guidelines as to thes. 50
7.instances in which governmental intervention might be warranted and as to the forms. 50
8.and particular design of intervention.s. 50
9.The third goal is to explore, in a comparative manner, the subtle ways in whichs. 50
10.European Community law and policy influence national institutional choices ands. 50
11.institutional frameworks in the Community Member States. In this complex process Is. 50
12.suggest that national institutional frameworks play the role of refractors. Refraction iss. 50
13.defined in physics as: “the bending of rays or waves of light, heat, sound, or the likes. 50
14.when passed obliquely from one medium to another with a different rate ofs. 50
15.transmission”. In a similar manner European influences are ‘bent’ under differents. 50
16.angles as a result of their contact with different national institutional environments.s. 50
17.Given the existing institutional diversity on the national level, Community law iss. 50
18.inevitably ‘refracted’ through a different institutional prism and splits into a wides. 50
19.spectrum of influences, often unpredicted or undesired. The extent to which commons. 50
20.European rules and policies will induce changes in national institutional frameworkss. 50
21.will depend on how deeply actors and organisations are symbiotically related with thes. 50
22.existing framework, and on the extent to which European rules challenge the core ofs. 50
23.national institutions.50 Rather than moulding national institutional frameworks into as. 50
24.uniform regulatory model, European integration tends to expose instances of ‘lock in’s. 50
25.and decision-making biases, while rarely radically changing the direction ofs. 50
26.institutional evolution.s. 50
27.At the same time, Europeanisation should not be seen as one-way street running froms. 50
28.the Community to the Member States. As shown in a number of legal and politicals. 50
29.science studies, it is more plausible to conceive of Europeanisation as a two-ways. 50
30.process of dialogue and interaction.51 This implies on the one hand that nationals. 50
31.institutional frameworks adjust so that they achieve better representation of nationals. 50
32.interests and actors at the Community level. On the other hand, national actors ands. 50
33.decision-makers, when acting within the European context, inevitably remains. 50
34.influenced by their national institutional environment. Their action at the Communitys. 50
35.level are often guided by a desire to change perceived national institutionals. 50
36.malfunctions, or to the contrary by attempts to bring the Community institutionals. 50
37.framework closer to the familiar domestic institutional landscape, not least as a way ofs. 50
38.reducing information and other transaction costs. This conceptualisation carries a duals. 50
39.message. It is pessimistic in predicting persisting incoherence and imperfection of thes. 50
40.European institutional environment, an unwieldy hotchpotch of national approaches. Its. 50
41.nevertheless holds a promise of constant interaction and learning, challengings. 50
42.unproductive and inefficient equilibria.s. 50
43.25 Structure The study is organised into three parts. In part one the analytical framework is presented. I first elaborate the theoretical premises by survey of different streams of institutionalism in law, social sciences and economics. The emphasis is placed on institutional economics (Ch. 1). In a second step, I present the institutional approach used in this study. A participation-centred perspective is advanced for analysing the relative advantages and disadvantages of national institutional choices. At the same time a historical institutional perspective is employed to gain insights in the continuity and persistence of legal institutions and their embeddedness in a broader institutional context. The methodological problems associated with comparative and interdisciplinary approaches are discussed (Ch. 2). In a third step, and following Komesar, an abstract analysis of the market, the political process and the judicial process in the context of fair trading is conducted. The basic challenge of fair trading law is seen to lie in the public good properties of information and of associated decision-making. Institutionalization and representation of dispersed low-stake interests is highlighted as a dilemma in all institutional settings, including adjudication and public intervention (Ch. 3). In part two, a rich description of the institutional framework of fair trading law in Germany and Sweden is provided. The emphasis is on institutional choice and on the design of the preferred mechanisms of enforcement. By tracing the evolution of the institutional framework I inquire into the reasons for particular institutional arrangements and institutional choices, as well as the factors accounting for institutional fixity and flux. Closer scrutiny is devoted to two historical instances: the conception of the specific fair trading institutions (Ch. 4) and the change of the institutional framework under the influence of consumer protection pressures in the 1960s and 1970s (Ch. 5). In part three, the main elements of the European Community framework of fair trading are described. I identify different levels of pressure for change and adaptation coming from the EU, depending on the form and methods of integration (Ch. 6). I then look back at national law of the Member States and try to gauge the most important influences of European integration on national fair trading law, by way of an institutional perspective (Ch. 7). The immediate purpose is to analyze the most significant changes in national legal rules, in enforcement procedures, but also in the attitudes of relevant actors and organizations arguably triggered by the process of European integration. The study ends with a cursory analysis of the latest developments in the field of fair trading on the level of the EU (Ch. 8) and a summary of findings.s. 51
I Studying Institutional Change: Analytical Approach
Institutional anaysis in law, social science and economics
1.The approach taken in this thesis to the study of legal change and Europeanisation is inspired by a dynamic and unwieldy field of social studies that has become known as institutionalism. Naturally, a simple reference to an institutional approach does not say much. The term ‘institution’ has been used in many different contexts, by many disciplines and with shifting connotations. There is therefore much to be elaborated on the basic terminology and the main premises of the analytical approach employed in this study. 1.1 Institutions and institutional analysis in legal scholarship The origins of the term ‘institution’ in legal scholarship go back to Gaius famous distinction between the three institutions of civil law, namely personae, res and actiones.} As national law was consolidated in the early modern era, Roman law and its institutions became a model for many advocates of systematization and modernization of existing legal sources. Notably, at law faculties of German universities in the 18th and 19th centuries a vast literature was devoted to ‘Institutionen’. The term ‘institution’ is by no way foreign to modern legal scholarship either. In a number of analyses of constitutional and administrative law the concept ‘institution’ is used interchangeably with terms like ‘organization’, ‘organ’ or ‘agency’. In this narrow and structural sense ‘institution’ signifies a distinct conglomerate of people and functions, forming a structural unit, with its well-defined place in the mechanism of government. It is, for instance, accepted jargon in European legal studies to talk of the ‘institutions’ of the European Community when referring to the Parliament, Commission. Council and other decision- and policy-making bodies of the Community.2 In national law institutions in this structural sense are considered the domain of public, constitutional and procedural law. On a deeper theoretical level an institutional approach to law is often connected with a general acknowledgment of the need to take into account the broader social, economic and cultural context of legal rules. In this broader sense, theoretical currents in legal scholarship as old and influential as Savigny’s Historical School have been regarded as examples of an institutional approach to law.3 The institutional approach to law so defined has been contrasted to legal positivism, concerned mainly with hermeneutic systemic reasoning with no regard for social environment and effects. Among the mosts. 53
2.prominent exponents of an institutional approach to law in contemporary Germans. 54
3.jurisprudence are such scholars as Karl Larenz4, Ludwig Raiser5 und Josef Esser.6s. 54
4.At the same time, while rejecting legal positivism, such institutional theories of laws. 54
5.have not been particularly successful in presenting a convincing program for ans. 54
6.alternative approach, informed by social and economic considerations. In a sense,s. 54
7.alternative approaches have mainly been based on intuitive ‘contextualisations’ of laws. 54
8.and legal practice. One has often underestimated or simply ignored the theoretical ands. 54
9.methodological difficulties of combining two daunting tasks: on the one hands. 54
10.mastering the ‘context’ of law and on the other hand providing relevant ands. 54
11.meaningful analysis of the normative material that constitutes the core of positive law.s. 54
12.A jurisprudential approach that defines itself as institutional and legal positivist at thes. 54
13.same time is the one advanced by Neil McCormick and Ota Weinberger. Thiss. 54
14.theoretical approach emphasizes institutions as human constructs and looks at law ands. 54
15.legal rules as institutional facts.7 Weinberger offers the following understanding of thes. 54
16.at the same time enabling and constraining role of institutions:s. 54
17.Such an institutional theory is opposed to Hans Kelsen’s hierarchical understanding ofs. 54
18.law as Sollen (‘ought’) and exclusively a product of the will of the norm-creatings. 54
19.authority. In contrast to Kelsen‘s view, legal norms are not perceived as coercive only,s. 54
20.but as enabling and constraining human behaviour. At the same time, the authorss. 54
21.demonstrate an ambition to reconcile contextualism with legal positivism. In fact, theys. 54
22.explicitly declare their approach as legal positivist (cf. the title ‘Grundlagen dess. 54
23.Institutionalistischen Rechtspositivismus’), but defend a more sophisticated and open-s. 54
24.minded brand of positivism than the one familiar from Kelsen’s ‘pure theory of law’.s. 54
25.Consequently, the authors want to avoid drawing too sharp a distinction betweens. 54
26.(‘pure’) legal science and socially oriented disciplines such as legal sociology.9 Thes. 54
27.study of the social reality in which legal norms exist should in this view be integrateds. 54
28.in the definition and the agenda of positive legal science. The institutional approach proposed in this thesis has indeed much in common with the theoretical lines of reasoning described above. It proceeds from an understanding of the importance of considering legal rules as institutions in their societal context. However, I venture to go further in crossing the line between social disciplines in search for a viable framework for analysis. ‘Contextualism’ is thus employed in a more conscious manner, with an open account of the particular theoretical detours in neighbouring disciplines. 1.2 Sociological approaches to institutions Sociological institutionalism has a long and venerable history, dating back to the classical oevres of Émile Durkheim and Max Weber. While Durkheim paved the way for systemic approaches to social relations using large data sets, Weber investigated the political social, economic and legal practices of bureaucracy. He also founded the modern conception of the state and of rationality. The work of Robert Michels on political parties,11 Adolphe Berle and Gardiner Means on corporate management,12 and Herbert Simon on public administration progressively deepened the understanding of various forms of organization.13 By the 1960s students of bureaucracy, leadership, management and administration were beginning to forge a compatible terminology. At this point sociologists took the lead, insisting that there is more to institutions than an organization with staff, funding and a set of formal regulations and objectives. Apart from such rational, goal-oriented structures, institutions possess a social dimension. Over time, sociologists can demonstrate, an informal structure evolves that helps uphold (and sometimes partially subvert) the formal system once established. According to a leading sociological institutionalist, Philip Selznick, institutions are closely linked to the realization of values. Different from temporary or purely instrumental arrangements, institutions assume a distinctive character of function, become endowed with meaning and/or vested interests. A mature institution will no longer be limited to its original objectives. In Selznick’s view processes of institutionalization constrain conduct in two key ways: ‘b y bringmg with it a normative order, and by making it hostage to its own history”. The neoinstitutionalism of the late 1980s and early 1990s reinvigorated many of these insights.15 The attention of organizational theorists was again directed at thes. 54
29.embeddedness of state bureaucracies and private organizations in particular socials. 56
30.environments. Also economists and political scientists were attracted to the concept ofs. 56
31.institutions, although some were satisfied to analyze ‘social capital’ as an aggregates. 56
32.property.16 In this revival the most important feature of neoinstitutionalism may verys. 56
33.well have been the interaction between sociology and related disciplines such as socials. 56
34.psychology, anthropology, political science, but above all its expanding contacts withs. 56
35.economic theory.s. 56
36.1.3 Economic theory and institutionss. 56
37.A few decades ago economic theory did not have much to offer to legal scholarship.s. 56
38.Economic analysis was sometimes invoked for the implementation of legal rules, buts. 56
39.often sporadically and in the narrow areas of antitrust law or economic and trades. 56
40.regulation.17 At the same time economic theory showed a remarkable indifference tos. 56
41.the economic role of legal rules and of legal and political institutions. This attitudes. 56
42.reflected the state of theoretical sophistication of economic theory at the time. Thes. 56
43.classical (and neo-classical) model of perfect competition still dominated economics. 56
44.theory. Although far from real life competition, this highly abstract model wass. 56
45.considered rigorous enough to provide reliable predictions of markets and the prices. 56
46.mechanism.s. 56
47.Under assumptions of transparency, perfect information and rationality of markets. 56
48.actors, it is clear that economic theory cannot provide relevant explanations for thes. 56
49.existence of legal and political institutions. The latter were consequently generallys. 56
50.ignored in economic theory assumptions. In a perfect world of füll transparency,s. 56
51.rational market actors and given preferences, the very existence of law and politicss. 56
52.becomes a puzzle.s. 56
From a frictionless world to transaction costs economics
1.Several contributions in the late 1950s and 1960s that independently of each other hads. 56
2.the combined effect of changing this state of affairs. Notable is the classical analysis ofs. 56
3.Kenneth Arrow on the theory of decision-making under uncertainty, Stigler’s seminals. 56
4.article on the economics of information18 and Coase’s studies on the theory of the firms. 56
5.and on the problem of social cost.19 Despite the difference in theoretical approach, ones. 56
6.common feature of the emerging new economic theory consisted in relaxing thes. 56
7.assumptions of the perfect competition model and bringing it closer to the reality ofs. 56
8.markets. In this way economic theory was expected to account for more complex ands. 56
9.hitherto unexplained developments. Among the assumptions relaxed were notably thoses. 56
10.of perfect information and/or of rationality of actors.20 By ushering ignorance ands. 56
11.uncertainty into the ordered home of neo-classical economics, the new economic theory opened the way for exciting analysis and for bringing economics closer to the social sciences, as well as to law. In 1951 Kenneth Arrow directed his attention to processes of individual and collective choice under conditions of uncertainty.21 Although his main focus was the market, he was likewise interested in decision-making in broader contexts and succeeded in directing the economists’ attention to political and regulative processes.22 The school associated with this work of Arrow has become known as public choice theory and attempts to explain ”how political and bureaucratic bodies actually behave by assuming that political actors are self-interested maximizers of something (votes, agency budgets, profits, utility).”23 In the footsteps of Arrow, Anthony Downs ventured to apply economic theory to the study of the political process, offering economic explanations for phenomena such as party ideologies and majority voting.24 Two other classical exponents of the approach, James Buchanan and Gordon Tullock, developed a theory of politics that is very distant from conventional perceptions of the public-spirited politician. Buchanan and Tullock conceptualise politics as a market for votes, where rational individuals, pursuing individual interests of re-election, are trading with votes to maximize their chances for re-election.25 On a normative note, analysts tried to build a model of a decision-making process that satisfies certain desirable conditions for collective choice. Equally path breaking was the work of Stigler on the economics of information, published in 1961. Relaxing the assumption of transparency and perfect information, Stigler approached the problem of price dispersion and found an explanation in the existence of search costs. Building on these insights for the role of information asymmetries in economic life, a powerful analytical approach developed accounting for a number of economic institutions and phenomena that previously puzzled economists, such as the emergence of department stores, investment in reputation and advertising. We shall return to this theoretical line of reasoning when analysing the economic rationales for fair trading law. Yet the breakthrough of institutional economics is usually associated with the work of Ronald Coase. Already in his early contribution ‘Theory of the Firm’ Coase focused on the importance of transactions as the basis of markets and of all human interaction,s. 56
12.and hinted at the pervasiveness of transaction costs. He conceptualised the firm as ones. 29
13.form of economic organisation that has emerged as a response to problems ofs. 29
14.uncertainty and opportunism in contracting.26 A hierarchical organization has thuss. 29
15.provided an efficient substitute for horizontal contracting in specific situations. Thiss. 29
16.analysis was carried further in Coase’s seminal 1960 article ‘The Problem of Socials. 29
17.Cost’.27 It was this article which in a dramatic way attracted the attention ofs. 29
18.economists to law and legal institutions and, even if at a slower pace, the attention ofs. 29
19.lawyers to economic theory.s. 29
20.The powerful resonance of the article among economists can be understood having ins. 29
21.mind that Coase attacked the core of the then dominant paradigm of welfares. 29
22.economics. Challenging the widely accepted Pigouvian criteria for measurement ofs. 29
23.economic efficiency, proponents of welfare economics argued for governmentals. 29
24.intervention in all instances where markets would produce so called ‘externalities’.28s. 29
25.Externalities were defined as situations where economic exchange even unders. 29
26.competitive markets would produce unaccounted negative effects for third parties,s. 29
27.costs that would not be compensated for by the beneficiaries of the exchange. Thes. 29
28.classical example was that of environmental pollution and its repercussions for locals. 29
29.residents. The policy advice of welfare economics was logically to internalise thes. 29
30.incurred third-party costs, i.e. to devise mechanisms for increased accountability ofs. 29
31.market actors for the negative external effects of their activity. The most obviouss. 29
32.mechanisms for internalising external effects were liability rules and governmentals. 29
33.sanctions.29s. 29
34.Coase radically reversed the perspective. The problem of externality was in hiss. 29
35.analysis conceptualised as a problem of choice between alternative uses of one and thes. 29
36.same economic resource. Thus pollution in a residential area was not about the costs. 29
37.inflicted by the polluter to the residents. It was rather about choosing betweens. 29
38.residence and industrial production as two alternative uses of the same limiteds. 29
39.resource (clean air). In case the use of a property as residence was more highly valueds. 29
40.in society (value being measured by willingness to pay), then the residents would bes. 29
41.granted an injunction against the factory and the industrial production was to cease. Bys. 29
42.contrast, in case the factory’s activity was considered more valuable, the residentss. 29
43.would only be granted a right to compensation or to reasonable measures aimed ats. 29
44.diminishing the damage. Otherwise they would have to put up with the pollution ors. 29
45.give up their residence in the area. Coase predicted that irrespective of the outcome ofs. 29
46.the case, in a world with negligible transaction costs, market actors would eventuallys. 29
47.reach a state of optimal resource allocation through voluntary transactions irrespectives. 29
48.of the initial distribution of entitlements. The market would finally allocate thes. 29
49.resource to the party most willing to pay for it, i.e. efficiently. Following this admittedly oversimplified presentation of the Coase theorem, one may wonder in what way it contributed to the increased interest in the role of legal institutions. The straight-forward conclusion from the analysis appears to be that, given zero transaction costs, the initial resource allocation is unimportant and the economic significance of different legal arrangements on property rights remains obscure. This inference, prima facie, suggests the irrelevance of law rather than a new imperative to take legal institutions into consideration. The key to the puzzle is provided by a reversed (e contrairo) reading of the analysis. In the presence of nonnegligible transaction costs, legal institutions as well as initial allocation of entitlements, acquire crucial importance. The assertion that transaction costs in real markets are never zero does not need extensive corroboration. It is at this particular juncture, in the reduction of transaction costs, that the true economic relevance of legal institutions is seen to lie. A number of legal rules and institutions that previously have remained a mystery to economists suddenly obtain a new meaning and a rigorous explanation. Paradoxically, the Coase theorem gave rise to two quite divergent schools of thought both on an explanatory and on a normative level. On the one hand, it triggered abundant research on the efficiency maximizing (transaction costs minimizing) function of spontaneously evolved private law rules. For lawyers the theorem opened up a whole new world of alternative conceptualisations of basic private law doctrines. Since law and economics developed as a primarily American discipline, the focus was on common law as judge-made law. The message of the innate tendency of spontaneously evolving legal orders to enhance efficiency proved particularly appealing to legal scholars. One of the most eminent exponents of law and economics theory, Judge Richard Posner associated with the Chicago school of economic analysis, developed a general theory on the efficiency of the common law linked to its evolutionary and efficiency-oriented character.30 On a policy level, the underlying message of these analyses was the importance of a rigorous definition of property rights and a general scepticism towards attempts at governmental intervention in economic life. It similarly insisted on the advantages of private ordering. Generally, Coase’s contribution was conceived of as a powerful critique of conventional welfare theory with its conceptualisations of market failure, externalities and the ensuing approval of government intervention. In short, the thrust of the article was interpreted by a large group of economists and lawyers as a general appeal for limited government and praise of the virtues of the system of spontaneous allocation of resources through markets and private ordering. However, the Coase theorem gave birth to at least one alternative current of thought in terms of policy advice. In particular lawyers and economists interested in public policy saw the true message of Coase’s analysis to lie elsewhere. They agreed that the article was a reaction to the simplified and uncritical approach to governmental intervention as practiced by Pigouvian welfare economists. Indeed, part of Coase’s ambition was to demonstrate that in a number of situations government intervention would not do better than the market, and that it was generally wrong to use the ideal model of perfect competition as a benchmark against which actual economic performance coulds. 29
50.be judged. Yet they did not perceive Coase analysis as a sweeping denial of legislatives. 31
51.and governmental intervention and full reliance on a free market. On an explanatorys. 31
52.level, Coase’s article could quite to the contrary be read as a more robust explanations. 31
53.for the emergence of a number of institutions, not only a result of spontaneous regimess. 31
54.of private ordering, but also of deliberate public intervention.s. 31
55.The gist of Coase’s argument could be read as an appeal for what is often called as. 31
56.‘comparative system approach’,31 i.e. ‘an approach that compares the economics. 31
57.consequences of alternative ways of organising the allocation of resources’.32 Ass. 31
58.Coase himself stated in the conclusion of his much celebrated 1960 article:s. 31
59.Whereas in the first of his two most famous articles, “The Nature of the Firm”, Coases. 31
60.pioneered a comparative analysis between different market arrangements (i.e. contracts. 31
61.and firm), ”The Problem of Social Cost” called for comparison between the markets. 31
62.and alternative systems of resource allocation. Therefore, on a normative level, rathers. 31
63.than an unequivocal preference for the market, his analysis could be understood as as. 31
64.rigorous programme for selective and solidly motivated legislative and governmentals. 31
65.intervention based on insights into the pervasiveness of transaction costs. As Dahlmans. 31
66.noted:s. 31
Institutional economics
1.It was the alternative reading of Coase and the insights into the pervasiveness ofs. 31
2.transaction costs that gave new life to economic research focusing on institutions, ands. 31
3.which is of immediate interest for the purposes of this study. The designation ‘news. 31
4.institutional economics’ is sometimes used to contrast the new theoretical currentss. 31
5.from the old institutionalist approach in economics, notably that which is associateds. 31
6.with the work of John Commons.35 Institutional economics is far from a coherents. 31
7.theory. It is rather a set of theoretical propositions that all focus on the economics. 31
8.reasons and effects of institutions and on alternative forms of social and economics. 31
9.organisation. Similar to social science theories on such matters, institutions ins. 31
10.institutional economics are often conceived of as humanly constructed norms, ruless. 31
11.and conventions. However, the focus is on the way institutions and organizations contribute to shaping human cooperation and overcoming problems of transaction costs. Economic institutionalists build their theories without necessarily abandoning methodological individualism as a main premise of economic theory. Yet in contrast to classical economists, they relax assumptions of transparency and costless exchange. Within the broad category of ‘institutional economics’, the approaches vary on the one hand concerning level, focus, and unit of analysis. On the other hand they differ in terms of behavioural assumptions. In an extensive survey of institutional economics, Oliver Williamson has proposed a three-level scheme for organizing and positioning institutional research: the level of the individual, the level of the organisation and the level of institutions.36 Institutional research may focus on each of these levels depending on the purposes of investigation and take the other two levels as exogenous variables. Another point of difference concerns the main behavioural assumption of the neo classical model, namely that of rationality. A large community of institutionalists, while acknowledging the importance of transaction costs, does not question the rationality model of classical economic theory. Others are inclined to search for more realistic assumptions even in this respect. Students of institutional economics in this divergence perceive an important schism between two trends in institutional economics, differently labelled in order to properly reflect the distinction. The term ‘Neoinstitutionalism’ is used for those analyses which, although focusing on institutions and critical of the neoclassical approach, remain within the ‘hard core’ of neoclassical research program and the rational choice model. By contrast, the designation New Institutional Economics is applied only to those institutionalist theories that abandon the rationality assumption.37 13.2J New Institutional Economics One of the most famous exponents of the New Institutional Economics is Oliver Williamson. In his ‘The Economic Institutions of Capitalism’ Williamson carried the Coasean analysis (especially ‘The Nature of the Firm’) further, and sought to explain the origins of horizontal and hierarchical market organization in terms of economizing on transaction costs. In this and other earlier works Williamson did not make a clear distinction between institutions and organizations. Markets and hierarchies as alternative organizations of economic activity were described as institutions. In more recent analyses Williamson has been more precise to underline the distinction between institution and organisation and has described his own interests and contributions to lie on the level of organisations.38 His focus is thus on the process of governance. Organizations are seen as reacting to both individual preferences and to the institutional environment, and subsequently accommodating these influences throughs. 31
12.adapted forms of governance. Institutions in the forms of norms, rules and codes ofs. 39
13.conducts are consequently perceived as something external, exogenous, ass. 39
14.environment for the organization, constantly posing new challenges to governance.s. 39
15.When it comes to behavioural assumptions, Williamson’s ambition is to introduce as. 39
16.maximum measure of realism but one that would not weaken the theoretical stringencys. 39
17.and predictive power of the analysis. For this purpose Williamson finds support ins. 39
18.Coase:s. 39
19.The actor is not the ‘rational man’ but the so-called ‘contractual man’, characterizeds. 39
20.through the concepts of bounded rationality and opportunism. Following the classicals. 39
21.definition of Herbert Simon of bounded rationality, economic actors are assumed to bes. 39
22.‘intendedly rational, but only limitedly so.’40s. 39
23.1.3.2.2 Comparative institutional analysiss. 39
24.A promising approach to the analysis of institutions has been advanced by publics. 39
25.policy scholar Neil Komesar.41 Building essentially on Coase, but also on other stringss. 39
26.of institutional and public policy analysis42, Komesar conceptualises the market, thes. 39
27.political process and the courts as alternative decision-making processes. His mains. 39
28.thesis is that the choice between decision-making institutions is crucial for the efficients. 39
29.achievement of any social goals. The analysis is, thus, decidedly normative. Komesars. 39
30.defines the approach as “revisionist law and economics”. And indeed, much ofs. 39
31.classical Posnerian law and economics focuses on either demonstrating the efficiencys. 39
32.of private ordering (the common law in the American setting) or on criticising thes. 39
33.malfunctioning of public regulation. Komesar argues convincingly that such analysess. 39
34.are flawed because of their one-sidedness. The performance of the analysed institutions. 39
35.should instead be evaluated against the background of possible failures in thes. 39
36.performance of alternative institutions.s. 39
37.The key to the comparative system evaluation advocated by Komesar is the so-calleds. 39
38.participation-centred approach. The use of the broad concept of ‘participation’ servess. 39
39.to facilitate the extension of the Coasean transaction cost approach from markets tos. 39
40.politics and to adjudication. It brings the logic of economic theory closer to publics. 39
41.policy and law. Studying the opportunities for participation (and representation)s. 39
42.implies on the one hand analysis of the interests involved in a particular policy issues. 39
43.and, on the other hand, analysis of characteristics of the alternative decision-makings. 39
44.processes that enhance or reduce participation. Clearly, participation alters shapes. 39
45.depending on the decision-making process. Thus, participation in markets primarily occurs through the process of transacting. Participation in the political process (legislation or administrative process) can take place through a variety of forms among which voting and lobbying are the most important. And finally, participation in adjudication takes the form of litigation. The focus is on the mass of participants, i.e. consumers and producers for the market process, voters and lobbyists for the political process and litigants for the judicial process.43 Official actors in the political and the legislative process - judges and law-makers - are only attributed secondary importance. Participation opportunities are weighed through assessing the costs incurred and the benefits expected from participation of the actors in the respective decision-making process. For the market these are transaction costs and benefits, while for the courts they are litigation costs and benefits. In terms of the political process, such opportunities depend on the costs and benefits of political participation. Benefits and costs of participation thus become the main units of analysis. They account for the relative efficiency of the alternative decision-making processes with regard to a specific law and public policy issue. Naturally, costs and benefits are often related and difficult to analyse independently. Yet for the sake of more stringent analysis Komesar insists on distinguishing between the two. Participation costs are subdivided into two main categories, i.e. information and organisation costs. More specifically, the costs of participation depend “on the complexity or difficulty of understanding the issue in question, the number of people on one side or the other of the interest in question, and the formal barriers to access associated with institutional rules and procedures.”44 As organisation costs Mancur Olson had defined: “the costs of communication among group members, the costs of any bargaining among them, and the costs of creating, staffing and maintaining any formal group organisation”.45 Arguably, in the final analysis even organisation expenses boil down to information costs. The benefits of participation are measured through the per-capita stakes of affected actors. The emphasis on stakes as determinants for the benefit of participation in decision-making processes allows for further refinement of the analysis. The stakes of potential participants differ both in terms of size and in terms of their distribution among the group. One can usefully distinguish between high stakes and low stakes and between concentrated and dispersed stakes. The distribution of the stakes between potential participants in a decision-making process is decisive for the probability of successful participation. An even distribution of stakes on both sides of the transaction and a relatively low number of parties involved are suggestive of high benefits and thus of high probability of participation. In contrast, skewed distribution with concentrated stakes on one side and dispersed stakes on the other reflects a problematic, non-optimal transaction situation. In this aspect Komesar’s approach resembles Mancur Olson’s classical analysis of collective action.46 Olson provided a convincing explanation as to why actors would be disinterested in participation ins. 39
46.collective action concerning broadly dispersed interests, despite possibilities tos. 53
47.improve the situation of the group. Olson argued that due to high costs of organisations. 53
48.and risk of ‘free-riding’ such behaviour was rational. His pessimistic prediction reads:s. 53
49.In general, comparative institutional analysis stresses that the dilemmas of institutionals. 53
50.choice begin with large numbers. This proposition is familiar from Coaseans. 53
51.comparative system analysis. Given small numbers of actors (low transaction costs)s. 53
52.markets can be expected to cope endogenously with resource allocation throughs. 53
53.voluntary transactions.48 But if there are many actors on one side of the interestss. 53
54.involved, transaction costs increase and at least potentially the question arises whethers. 53
55.resorting to alternative institutions might reduce allocative inefficiencies. Yet,s. 53
56.comparative institutional analysis demonstrates convincingly that large numbers ofs. 53
57.affected parties constitute a problem in every setting. Similar interest constellationss. 53
58.cause analogous problems of organisation and representation. Participations. 53
59.malfunctions in the market setting are reproduced in the political process and ins. 53
60.adjudication. In other words, institutions tend to ‘move together’.49s. 53
61.Still, some categories of participation malfunction are linked to particular decisions. 53
62.making processes. When studying the political process, Komesar identifies twos. 53
63.categories of situations that are particularly conducive to representative malfunction.s. 53
64.The first is characterized by the dominance of small, concentrated interest groupss. 53
65.(which is in conformity with well-established theories of public choice and interest-s. 53
66.groups politics).50 Komesar labels this situation a case of ‘minoritarian bias’.51 Thes. 53
67.theory predicts that, when public policy issues involve balancing between concentrateds. 53
68.high-stake interests and dispersed small-stake interests, the former will prevail in thes. 53
69.legislative process as well as in public agency decision-making. This is the result ofs. 53
70.free riding and low benefits of organization associated with diffuse interest groups52,s. 53
71.but also due to principal-agent problems characteristic of the political and thes. 53
72.administrative process.53 Interest group theories of politics provide empirical evidence of överrepresentation of concentrated interests in the political process, along with the ‘capturing’ of public agencies by defenders of the very interests they are set to regulate. Komesar, however, augments the interest group theory with analysis of the role of majorities which allows him to identify a second category of mal-representation, namely ’the tyranny of the majority4. This second category of mal-representation is labelled ’majoritarian bias‘. All theorists of public choice recognize some importance for the influence of the majority but do not offer any explanation as to when and why such an influence may produce adverse effects.55 In order to come to a more satisfactory answer Komesar proceeds to analyse the character of the large group. He offers two explanatory factors that may be decisive for the success of public action despite high numbers. In the first place, the average per capita stakes are important. This factor predicts that the greater the mean, the higher the probability that collective action will follow. The second factor is the variance and skewness of the stakes. Uneven distribution of the stakes brings the analysis of the large group closer to that of the small group, since a small subgroup with high stakes will then act as a driving force for collective action. The term ‘catalytic sub-group’ nicely captures this phenomenon.56 Finally, there are better opportunities for mobilizing dormant majorities if the issue concerned is simple and easy to be communicated in powerful metaphoric terms. Finally, the framework proposed by Komesar requires a rigorous analysis of the characteristics of each of the institutional alternatives in terms of effects on participation costs and benefits. To take one example, in contrast to the political process, participation in adjudication is typically a costly enterprise, involving litigation fees and requiring sophisticated expert advice. Access to the judicial process is highly formalised through rules on standing, jurisdiction, and choice of law.57 The judiciary operates on a very limited scale and possesses only limited expertise to decide on highly technical issues. At the same time, the judicial process has the advantages of ensuring direct access, careful and lengthy examination of the issue by a body principally isolated from political pressure and information manipulation. These aggregate characteristics of the judicial process makes it particularly apt to deal with certain situations of skewed distribution of stakes, for instance where the political process suffers from severe majoritarian bias like the violation of minority rights.58s. 53
73.The approach advanced by Komesar offers powerful insights in the comparatives. 55
74.advantages and disadvantages of different decision-making processes, moreover ins. 55
75.relation to different policy settings. The advantage of Komesar’s analytical approach iss. 55
76.that it uses relatively clear-cut categories and can be easily applied to different legals. 55
77.and public policy issues. Since one of the intricacies of fair trading regulation is seens. 55
78.to reside with small and dispersed consumer, stakes as well as with high costs ofs. 55
79.information, organisation and litigation, the model appears particularly suitable for thes. 55
80.purposes of this investigation.s. 55
81.1.3.2.3 Historical institutionalisms. 55
82.A different perspective on institutions is adopted by another variation in thes. 55
83.neoinstitutionalist line of theorizing, better known as historical institutionalism. Thes. 55
84.leading name is Douglass North. As pointed out above, North understands institutionss. 55
85.as humanly constructed constraints to social and economic behaviour. Theses. 55
86.constraints appear in the form of routines, rules and customs which frame humans. 55
87.conduct and help reduce uncertainty. The emphasis is on the level of institutions,s. 55
88.where institutions are defined as “formal rules, informal constraints and thes. 55
89.enforcement characteristics of both.”59 The main question he poses is: how dos. 55
90.institutions evolve over time and how do present institutions influence futures. 55
91.individual and institutional choices?s. 55
92.One of the main puzzles that drives North’s analysis is the dramatic divergence ins. 55
93.economic performance and development between different countries in the world.60s. 55
94.The unravelling of this puzzle brings him to insights in the constraining force ofs. 55
95.institutions. Institutions frame human behaviour and serve to reduce uncertainty ands. 55
96.economize on transaction costs. According to the evolutionary theory of economics. 55
97.development elaborated by Alchian, competitive markets should over time produces. 55
98.efficient institutions.61 Yet according to North the empirical evidence for suchs. 55
99.convergence is lacking and even amounts to the contrary proposition. Inefficients. 55
100.institutions prosper and divergence between developing and developed countries ins. 55
101.efficiency terms even increases. It was this discrepancy that provoked his interest fors. 55
102.institutions and their role for economic performance and efficiency.s. 55
103.Unlike other institutionalists who treat organizations as institutions, North insists ons. 55
104.distinguishing between the two in order to enable stringent analysis of theirs. 55
105.interaction.62 The distinction is crucial, since in this way the analytical approach iss. 55
106.capable of capturing not only processes of stability and inertia but also processes ofs. 55
107.change at incremental or more dynamic pace. Organizations are conceived as “groupss. 55
108.of individual engaged in a purposive activity.” They are designed by their creators to maximize wealth, income, or other objectives defined by the opportunities afforded by the institutional structure of society.63 This broad definition covers the classical market organization, the firm, but likewise the guild, the political party, the Congress or the executive agency. It allows for parallel consideration of market, political and adjudicative processes and organizations. Institutions open new opportunities for gains from trade and thus give rise to organizations and institutional agents who are willing to make use of these new opportunities. In the words of North: The backside of the interaction between institutions and organizations is the ensuing risk of symbiotic relations between organizations and institutional frameworks, leading to situations of institutional lock-in, i.e. pronounced resistance to change despite efficiency losses. Contrary to claims of evolutionary theories of economic growth65, North convincingly demonstrates that institutions are not necessarily evolving towards increased efficiency in a classical Pareto sense.66 This is particularly so for institutions which are a product of the political process, typically legal rules resulting from legislative processes. Given differential bargaining power in societies, it is not at all given that these institutions will be created to promote efficiency. Rather they may further the interests of those with greater bargaining strength.67 Adopting more realistic behavioural assumptions such as expected utility and bounded rationality, North views the persistence of institutional inefficiency as a problem of knowledge and learning. Even if institutions do not promote increased efficiency, they have a tendency to persist over time because institutional agents follow imperfect subjective models of reality and are influenced by informal constraints that change slowly. The core of the theory of institutional change advanced by North could be summarized as aiming to explain “how the past influences the present and the future, the way incremental institutional change affects the choice set at a moment of time, and the nature of path dependence."68 It is the symbiotic relations between the institutional framework and the organizations it (re)produces that account for the persistence of institutions over time. So-called ‘path dependence’ is according to North a result ofs. 55
109.incomplete markets, fragmentary information feedback and significant transactions. 76
110.costs. Under these conditions ‘the subjective models of actors modified both by verys. 76
111.imperfect feedback and by ideology will shape the path.’69s. 76
112.The long-term, historical perspective and the emphasis on institutional persistences. 76
113.have provoked criticism that the analysis suffers from a conservative and deterministics. 76
114.bias.71 Thus, it is claimed, the analysis does not capture situations where potential fors. 76
115.change and transformation exists. This criticism, however, does not really do justice tos. 76
116.North’s analytical model, at least not if one is to judge from North’s classicals. 76
117.monograph: Institutions, Institutional Change and Economic Performance. Althoughs. 76
118.the main focus is on the constraining force of institutions, the analysis offers valuables. 76
119.insights into the role of organizations and actors as factors of institutional change. It iss. 76
120.true that change is described as incremental and it is underlined that evens. 76
121.revolutionary change does not totally wipe out the pervasive influence of pasts. 76
122.institutional constraints.72 At the same time there is an implicit awareness of thes. 76
123.importance of institutional actors and their changing preferences as factors fors. 76
124.institutional change.s. 76
125.North’s approach is basically explanatory. Through an extensive analysis of the role ofs. 76
126.institutions throughout economic history, he seeks to explain diversity in economics. 76
127.development across countries. Yet there is at least one important insight withs. 76
128.normative implications. Discussing the question of how one should evaluates. 76
129.institutions and their impact on economic efficiency, North develops the concept ofs. 76
130.‘adaptive efficiency’. North describes adaptive efficiency as providing:s. 76
131.With Hayek74, North argues that a society that permits the maximum generation ofs. 76
132.trials will be most likely to solve more problems through time.75This is certainly ans. 76
133.interesting and exciting approach, since at the same time it questions normatives. 76
134.analyses based on abstract criteria of efficiency (Nirvana solutions).76 But it likewise demonstrates that comparative system analyses of the Coasean type cannot ignore historical reality and tradition.s. 76
135.Having presented a number of different institutional perspectives in law, sociology ands. 78
136.economics, it is now time to pull the strings together and provide a more systematics. 78
137.account of the institutional approach used in this study as well as to define the mains. 78
138.variables of analysis. The institutional approach proposed here combines an interest ins. 78
139.the stabilizing role of institutions and the dynamic role of interests and agents ins. 78
140.explaining a continuous movement from stability to change. It builds in its micro-s. 78
141.analytical sections on comparative institutional analysis, but is sensitive for the role ofs. 78
142.institutional path dependence and contingency, in tune with historical institutionalism.s. 78
143.2.1 Institution-centred perspective: the logic of institutional persistences. 78
144.I shall first outline those aspects which make historical institutional analysiss. 78
145.particularly conducive to integration with legal analysis. A kinship between historicals. 78
146.institutionalism and legal analysis can be found on a number of levels. An evidents. 78
147.commonality is the shared interest in legal rules and enforcement mechanisms. Likes. 78
148.historical institutionalists, legal analysts tend to view legal rules as importants. 78
149.institutions constraining human behaviour. Either intellectual endeavour insists on thes. 78
150.importance of enforcement. Yet whereas legal analysis stops here, economics. 78
151.institutionalism inquires further into the relation of the institutional framework withs. 78
152.economic efficiency. As we shall see, however, the question of efficiency is not - or ats. 78
153.least should not be - wholly uninteresting for lawyers either. Many legal regimes aims. 78
154.explicitly at enhancing economic efficiency. And even where the goal of certain legals. 78
155.rule is other than efficiency, the efficiency of the legal framework would finally bes. 78
156.decisive for the achievement of the goal.78s. 78
157.Another commonality is the mutual interest in the history and the evolution of legals. 78
158.rules. For historical institutionalism this interest forms an integral part of its agenda,s. 78
159.namely substantiating the decisive influence of past institutions on present choice-sets.s. 78
160.But looking at the history of legal rules is an indispensable component of any legals. 78
161.analysis worth its name. Lawyers in most countries would at least glance at thes. 78
162.original legislative intent of statutes, consider preparatory material and search fors. 78
163.precedents (in both common law and Continental systems). In fact, legal doctrine cans. 78
164.be said to be one of the transmission belts for the influence of the past on presents. 78
165.institutions and thus an important factor for achieving the continuity so interesting fors. 78
166.historical institutionalists.s. 78
167.Historical institutionalism shares the general advantage of economic analysis of law,s. 78
168.namely that it directs the search light to the problem of efficiency. Yet, in contrast tos. 78
169.classical law and economics, historical institutionalism with its awareness of thes. 78
170.conservative force of inherited institutions and intellectual frames of references. 78
171.provides a much more realistic picture of the world in which legal change takes place.s. 78
172.Normative advice on the basis of economic analysis is often influenced by thes. 78
173.frictionless paradigm of the neo-classical model. Historical institutionalism givess. 78
174.insights into the conservative force of existing institutions, formal and informals. 78
175.constraints as well as into the role of organizations and institutional agents as factorss. 78
176.of continuity or change. Historical institutionalism demonstrates the complexity of the institutional framework and requires an integrated analysis of all its components. This could exert a refreshing impact on the highly technical and isolationist analysis typical for legal scholarship. One major contribution of historical institutionalism would be to sensitise legal scholars to the importance of the existing mechanisms of enforcement. The rules in combination of mechanisms of enforcement to a large extent predetermine what agents and organizations will emerge on the institutional scene and whether they are in a position to exploit the framework and induce institutional change once preferences and prices change (to effectively signal the need for change). Finally, historical institutionalism is particularly promising in comparative legal studies. It provides analytical tools to test hypothesis of autonomous legal orders vs. instrumentalist logic of legal transplants, hypothesis of convergence or persistence of legal cultures. As a theory lying on the macro level it is better suited to be applied to more complex large-scale phenomena such as comparative study of legal change and influence of European integration over national frameworks. Conventional economic analysis of law may provide excellent tools for micro analysis of particular legal doctrines in a limited national setting. Historical institutionalism, by contrast, provides an intellectual framework for macro analyses. Historical institutionalism and legal analysis differ as to the level of detail they require. Whereas legal analysis looks typically at the micro-institutional level of single provisions, precedent, or at a group of rules forming a systematic unity, historical institutionalism is interested in the broad picture and in the institutional framework as a whole. Legal analysis could be compared with classicist painting in its desire to capture the tiniest detail and find its exact place in the picture. Historical institutionalists take a more ‘impressionist’ approach, where the object can be recognized, but precision is not a virtue. In a similar vein, the time perspective varies substantially. Historical institutionalism digs long back into the past in order to find explanation for present institutional developments. Legal analysis, in contrast, typically limits the travel in time to the near past, which can generate material for legal interpretation. As always with different disciplines, the most important difference concerns the goals of analysis. Historical institutionalism seeks to explain the effect of legal rules and institutions on economic efficiency. Normatively it tries to shape institutional frameworks that are conducive to economic growth. Conventional legal analysis, in contrast, represents normative analysis in a different meaning, namely in offering guidance for interpretation and application of legal rules. Naturally, where transposition problems exist, one needs to adjust the framework to its new purposes. How can historical institutionalism be ‘translated’ into the language of law? The integration between institutional and legal analysis requires several modifications of the design that have to be explicitly reported. It should become evident that the degree of detail is a result of a compromise. The present study zooms in on the picture in comparison to the historical type of analysis conducted by North. As a lawyer I cannot be satisfied with the birds-eye view of a historian. Therefore, as is conventional in legal analysis, I will descend to the level of individual rules ands. 78
177.cases. Since one of the goals of this study is to comparatively explore different legals. 79
178.approaches to the regulation of marketing practices, I provide a relatively detaileds. 79
179.picture of substantive rules and enforcement procedures. Yet unlike conventional legals. 79
180.analysis, I do not strive for exhaustiveness of analysis. My ambition is to realisticallys. 79
181.capture the institutional core of national legal systems seen as ideal types, to reflects. 79
182.and communicate their particular flavour and character. Finally, in order to enhances. 79
183.the normative aspect of the analysis, I complement the historical institutionalists. 79
184.perspective with insights gained from the ‘instrumentalist’ approach of comparatives. 79
185.institutional analysis.s. 79
Formal rules, informal constraints, enforcement
1.The way the term ‘institution’ is used in this study is influenced by North’s, by nows. 79
2.classical, definition. Institutions are consequently understood as “formal rules,s. 79
3.informal constraints (norms of behaviour, conventions and self-imposed codes ofs. 79
4.conduct) and the enforcement characteristics of both.”79 Even if this definition mays. 79
5.appear rather broad, it is not altogether foreign to a lawyer. Classical legal analysiss. 79
6.tends to deal with each of these elements, albeit often in isolation from the others.s. 79
7.Arguably, the majority of legal investigations are devoted to formal rules. I refer heres. 79
8.to various analyses of what is called ‘substantive law’. Another group of legal scholarss. 79
9.focus on procedure and thus on enforcement of rules. Finally, case law and legals. 79
10.doctrine reveal deeply embedded informal constraints that influence the behaviour ofs. 79
11.courts and other relevant agents. Missing is a more complex analysis, integrating thes. 79
12.different institutional elements and looking at their interaction and mutual dependence.s. 79
13.The three categories - formal rules, informal rules and enforcement will be used as mains. 79
14.variables of the institutional analysis also in this study, yet with significant qualificationss. 79
15.due to the interdisciplinary character of the analysis.s. 79
16.Despite its strength, the definition per enumeration provided by North does not names. 79
17.the core element of the concept institution. And this core element has actually much ins. 79
18.common with the definitions given in sociological studies on institutions. Formals. 79
19.rules, informal constraints and enforcement are there for repeated reference ands. 79
20.application. Only in this sense do they act as constraints of human behaviour. In thiss. 79
21.context it is questionable to what extent formal rules that are ‘rules in the books’ coulds. 79
22.be called institutions (law in the books vs. law in action).s. 79
23.2.L1.1 Formal ruless. 79
24.The formal rules category sounds, at least prima facie, familiar to a lawyer. Yet ones. 79
25.should not be induced to believe that North follows some Kelsenian logic ands. 79
26.precision in the distinction between formal and informal rules. Under formal ruless. 79
27.North classifies ‘political (and judicial) rules’, ‘economic rules and contracts.’ There iss. 79
28.awareness about the hierarchy between the different rules from constitutions, statutorys. 79
29.law, down to individual contracts. In the economists’ jargon hierarchy is described ass. 79
30.differing costs for alteration. This means that the higher up in the hierarchy a legal acts. 79
31.is found, the costlier its amendment. At the top of this hierarchy is the Constitution,s. 79
32.requiring special procedure for its amendment. However, North treats all rules in as. 79
33.similar manner, namely as constraints of human behaviour. This refreshing perspectives. 79
34.on rules lends support to a broad concept of legal sources that includes contracts, for instance in law merchant and in industrial relations. For my own part I will maintain a more legalistic definition of this category and will focus on rules deriving their validity from the legislative process. Guidelines issued by public agencies will be treated to the extent they have strong formal or informal authority for the addressees, whereas contracts are not relevant for this particular analysis. 2.1.1.2 Informal constraints More problematic from a legal perspective is the concept of ‘informal constraints’. According to North, among these are codes of conduct, norms of behaviour, conventions, beliefs and ideologies.80 He insists on the pervasiveness of informal constraints. Eventually, it is the embeddedness of formal institutions in informal constraints that accounts for the incremental and slow process of institutional change. Yet in the world of beliefs and convention, both economists and legal scholars tend to feel they find themselves in muddy waters. The necessary tools for studying informal beliefs appear to be in the domain of sociology. Historical institutionalism circumvents that ‘trap’ by adopting a long-term perspective and by applying a conventional historical approach. Seen from the distance of centuries, historical institutionalists argue that informal constraints and changes thereof can be established with acceptable degree of certainty. Thus, when North refers to changing attitudes towards women and slaves in Western society he is safe from methodological criticism. Also in this respect an adaptation to legal analysis is needed. Due to methodological difficulties, the analysis in this study sticks to the use of conventional legal material. Consequently, I venture to identify informal constraints through examining judicial practice and legal doctrine. Clearly, this narrowing down of the perspective would not allow capturing the whole range of attitudes and informal constraints. If we turn to the fashionable term ‘legal culture’, often employed by legal sociologists, the analysis here remains focused on ‘internal’ legal culture.81 Yet, given the decisive role that lawyers play on all levels from designing formal rules to their enforcement, the wider intellectual reference systems of those important actors should be taken into consideration. This side of the institutional framework probably remains more hidden to the non-lawyer. Its pervasive influence has, however, rightly been emphasized by legal historians like Alan Watson, who in this legal frame of mind perceives the most important factor of legal change.82 Seen in a historical perspective and as an aggregate of individual cases and decisions, legal practice carries the flavour and fragrance of changing or persisting attitudes and ideologies. Case law and doctrine in this sense are not treated as normative, but as empirical material, albeit with admittedly lower coefficient of representativity than sociological opinion polls. 2.1.1.3 Enforcement The third element of the institutional framework to be analysed is enforcement. In his early analysis, North included mainly formal rules and informal constraints in the concept ‘institution’. In his 1990 monograph, however, he showed a growings. 79
35.awareness for the role of enforcement mechanisms and bodies, devoting them as. 81
36.separate chapter of his book. Again there is a risk that familiar terminology may leads. 81
37.lawyers astray. Enforcement covers in North’s view not only procedural rules ands. 81
38.third-party enforcement bodies. An important part of enforcement is self-enforcement,s. 81
39.i.e. voluntary compliance with a contract or a rule. However, high transaction costss. 81
40.due to imperfect information and opportunism make third-party enforcement (typicallys. 81
41.courts) imperative in many settings.s. 81
42.Clearly, given the legal character of this study I will focus on the statutory rules ofs. 81
43.procedural and organizational nature. This does not imply completely loosing sight ofs. 81
44.the enforcement that takes place outside formal legal procedures. When relevant I wills. 81
45.consider mechanisms of self-regulation and will try to find evidence for the degree ofs. 81
46.self-enforcement. Nevertheless, also informal enforcement occurs ‘in the shadow ofs. 81
47.the law’83 and largely depends on credible threat (probability) of formal enforcement.s. 81
48.Therefore, the emphasis on third-party enforcement possibilities appears justified.s. 81
49.One of the goals of this study is to highlight the central role of enforcement for thes. 81
50.emergence of adaptively efficient institutional frameworks. Especially in moderns. 81
51.welfare states, regulation takes often the form of broad and rather general standardss. 81
52.and clauses, leaving concrétisation in individual cases to decision-making by thes. 81
53.judiciary or administrative agencies. The use of general clauses increases thes. 81
54.importance of rules on procedure and enforcement which ensure the participation ofs. 81
55.affected agents in shaping of substantive standards. Legal scholars speak ofs. 81
56.‘proceduralisation of law’.84s. 81
57.When putting the three institutional components of the framework to work in thes. 81
58.analysis, I shall first treat formal rules and enforcement and discuss theirs. 81
59.interdependence. In a second stage I will elaborate on case law and doctrine ass. 81
60.indicators of the evolving informal constraints (the standard of fair trading). Aparts. 81
61.from the classification of formal rules, informal constraints and enforcement Norths. 81
62.himself offers an alternative logic for classification, namely created and evolvings. 81
63.institution.85 Formal rules and enforcement typically fall under the category ‘createds. 81
64.institutions’, as they are brought to existence by deliberate political and legislatives. 81
65.action. Evolving institutions, on the contrary, develop more or less spontaneously ands. 81
66.less visibly through the aggregation of individual actions and decision. The latters. 81
67.typically become more resistant to change. At the same time, they may in certains. 81
68.situations serve as a forum for expressing new preferences and values in society, ass. 81
69.‘incubators’ for future formal rules.s. 81
Macro-institutional context as a factor for path-dependence
1.One of the main propositions of historical institutionalism concerns the embeddedness of institutions in a broader institutional context. The function of institutions is to constrain and frame human behaviour in the face of uncertainty and imperfect patterns of gaining knowledge. In this sense adherence to familiar institutions is an economically understandable (rational) way for handling complexity. Lawyers are arguably well aware of the conservative role of inherited legal institutions, in the form of established doctrines, principles and rules of seniority. Thus new rules in the sphere of public administration or private law are often seen to depend on rules, doctrines and ideologies that have shaped these complex areas through time. It suffices to mention the frequently invoked genetic connection of many modern private law doctrines with principles to be found in Roman law.86 Apart from coming as a confirmation of intuitive or scientifically defended perceptions, historical institutionalism reveals the two faces of tradition and continuity. Institutional choices that have led towards increased efficiency may generate production of efficient institutions also in the future. And just to the contrary, taking a path of inefficiency may determine distorted institutional development for years to come (path dependence).s. 86
Symbiotic relations and lock-ins
1.For legal analysis, a particularly intriguing insight of historical institutionalism concerns the intimate relationships between an institutional framework, enforcement in particular, and organizations which evolve as products of that framework. Legal enforcement procedures are not infrequently designed to rely on specific organizations and agents to ‘breathe life’ into institutional rules. A successful enforcement design is usually associated with intensive implementation and with the emergence of interested and engaged ‘enforcers’. Historical institutionalism, however, shows the reverse side of the coin, namely the evolution of symbiotic relations between institutional framework and organizations as an impediment to institutional change and as a factor that sustains inefficient institutions (so called ‘lock in’). This insight prompts an inquiry into the effects of the institutional framework on organizations and agents. 2.2 Participation-centred perspective: the dynamics of institutional change Historical institutionalism is concerned with demonstrating the large-scale effects that are observable only from the distance of time. It provides a general theoretical framework for capturing long-term legal change within and across national legal systems. This framework is, however, neither intended nor adapted to serve for deeper inquiries into issues of institutional design or allocation of enforcement competence. Legal analysis, by contrast, is bound to the present and is supposed to offer workable models for improved law and policy making. At this point the insights of historical institutionalism need to be linked to a robust research agenda capable of eliciting details. Most importantly, the question should be faced as to whether there are situations more likely to produce inefficient lock-ins than others or situations where adaptive efficiency can be attained. In my view, comparative institutional analysis augments historical institutionalism by providing further tools for empirical analysis. In contrast to historical institutionalism, which focuses on institutions and thus adopts a top-down perspective, comparative institutional analysis looks at interests ands. 86
2.agents, thereby arguably taking a bottom-up perspective.87 The approach can likewises. 87
3.be classified as lying on the micro-level since it requires studying specific law ands. 87
4.public policy issues. When can we expect interests to be adequately represented ins. 87
5.decision-making processes and finally in institutions, broadly construed? And whats. 87
6.are the situations conducive for distorted representation and for ensuing institutionals. 87
7.malfunctioning?s. 87
8.The advantage in Komesar’s approach is that it is genuinely comparative, i.e. nos. 87
9.decision-making process is taken a priori as superior over the others. At the same times. 87
10.it advances a conceptualisation of the economic, legal and political system as mutuallys. 87
11.dependant. It provides insights into the economic effects of politics and at the publics. 87
12.policy effects of markets. It brings democratic decision-making, access to justice ands. 87
13.market efficiency in relation to each other and demonstrates the interrelations betweens. 87
14.law, politics and economics.89s. 87
15.The influence of the participation-centred approach is less visible from the structurals. 87
16.components of the present study. Yet it informs the entire analysis and accounts for thes. 87
17.special attention devoted to interest-representation in the legislative process, to choices. 87
18.of institutional structures, and to cost-benefit reasoning in regard to participation in thes. 87
19.administrative process and in litigation. Comparative institutional analysis is designeds. 87
20.to be used by lawyers. But nevertheless some of the main concepts may needs. 87
21.additional adaptation and qualification. More specifically, the suggestion that benefitss. 87
22.and costs have to be measured and compared fills no lawyer’s heart with enthusiasm.s. 87
23.Are we not in the forbidding realm of exact science? The question is justified, but stills. 87
24.what is apparently implied is a more approximate even though more vulnerable sort ofs. 87
25.evaluation, something illustrated by Komesar’s own applications of the approach. Ins. 87
26.this sense qualifications such as high or low stakes should necessarily be understood ass. 87
27.rough evaluations. Where even lawyers can be fairly accurate is on the size ofs. 87
28.litigation costs and formalized costs for participation in the administrative process.s. 87
The choice between decision-making processes as main element of the
institutional framework
1.The major contribution of comparative institutional analysis is to advance a way tos. 87
2.look at the market, the political process and the judicial process as alternative decisions. 87
3.making processes for law and public policy issues. Moreover, it helps to distinguishs. 87
4.the matter of goal choice from the matter of institutional choice and to highlight thes. 87
5.decisive importance of the latter. The matter of institutional choice (as Komesars. 87
6.defines it) is to be found at all levels of the institutional framework. Indeed, a choice tos. 87
7.leave a decision to the market means to rely on existing informal constraints ands. 87
8.informal enforcement mechanisms. Likewise, a choice to entrust a particular policy issue entirely to the political process would imply a comprehensive statutory regulation of this issue (formal rules). Yet few issues are entirely left to the one or the other process. It is most often a question of supportive and complementary interplay between these processes.s. 87
The role of interests and distribution of stakes
1.Comparative institutional analysis urges us to look closer into the interests involved. It is not a question of ‘substantive’, but of ‘structural’ interest analysis. Much conventional legal analysis at least purportedly involves the balancing of different individual, group and public interests against each other. In intellectual property law, for example, we say that the interest of the author to receive remuneration for his or her creative activity is weighed against the interest of the general public to have free access to the object of creation (as well as society’s interest to promote intellectual activity in general). The question about which interest should prevail in situations of conflict occupies volumes of legislative and scholarly reasoning. ‘Structural’ interest analysis, by contrast, requires analysis of the opposed interests in terms of numbers of individuals concerned, size and distribution of the stakes (individual interests, concentrated group interests, and widely dispersed group interests). This specific model of interest analysis is preferred due to the main goal pursued, namely to highlight participation in decision-making. The question is not: which interest is worthier of protection but rather whether the interest structure can cause for representation distortions in the decision-making process? In legal scholarship awareness for structural interest analysis has been manifested in ‘access to justice’ approaches mainly in consumer law and environmental law.90 Such approaches have often led to appeals for alternative dispute resolution schemes, or to novel approaches to adjudication. What is new is that participation costs and benefits are assumed as the main units of analysis and the model applied to all major decision making processes. In addition, we possess a model for conceptualising the political process in situations that involve decisions over complex public policy issues.s. 92
Majoritarian vs. minoritarian bias in the political process
1.The categories ‘majoritarian’ and ‘minoritarian’ influence or bias will be used when relevant in the analysis of the law-making process. James Wilson in The Politics of Regulation has earlier advanced these categories.91 In his contribution to that volume, Wilson advances taxonomy of various forms of regulation. Depending on the influence of powerful concentrated interests or of majority interests regulation types are classified under four headings: client politics, interest group politics, majoritarian politics and entrepreneurial politics. With his more sophisticated elaboration of the model of benefits and costs of participation, Komesar brings this analysis one step further and offers a model for predicting when and where a particular form of politics will arise.92 Especially in view of the broad cross-country comparison in this study, the broad categories for analysing the legislative and political process are well-suited.s. 92
2.Likewise the idea of catalytic sub-groups as one factor for mobilizing dormants. 95
3.majorities and leading to majoritarian influence or bias will be tested. The definition ofs. 95
4.a catalytic sub-group is, however, somewhat unclear. Komesar identifies two ways ofs. 95
5.defining the catalytic subgroup: the first emphasizes the (at least potential) capacity tos. 95
6.activate the majority even if the result from this is detrimental to the majority.s. 95
7.According to the second definition a subgroup is majoritarian if it had the sames. 95
8.interests as the majority without regard to whether they could activate the saids. 95
9.majority. Komesar himself employs a third definition that combines the previous two:s. 95
10.“those parts of the majority whose interests coincide with the majority and who haves. 95
11.some ability to activate the majority.”93s. 95
12.It appears that the latter view excludes all minoritarian influence from the definition ofs. 95
13.the majoritarian catalytic group. It is not clear whether there is another well-suiteds. 95
14.concept to capture the important phenomenon of appropriation of the majority interests. 95
15.and its manipulative use to serve the interests of the minority.94 Since I find this types. 95
16.of influence on the political process as particularly interesting and not fully reflecteds. 95
17.by the less qualified concept of minoritarian influence, I will treat it as a separate types. 95
18.of interest mal-representation.s. 95
Enforcement design
1.Apart from the specific constellation of interests for each law and public policy issue,s. 95
2.comparative institutional analysis insists that institutional choice depends ons. 95
3.characteristics inherent to each decision-making process. These characteristics have tos. 95
4.do both with the more salient features of the market, the political process ands. 95
5.adjudication, but also with the particular design of these complex institutions that mays. 95
6.vary from country to country and from one issue/market to the other. Such features ass. 95
7.litigation costs, openness of the judicial process to class action and to action bys. 95
8.organizations, the flexibility of the administrative process, transparency - are alls. 95
9.factors that influence the costs and benefits of participation and respectively thes. 95
10.relative advantages and disadvantages of these complex systems.s. 95
11.As a legal category enforcement covers a number of more specific institutions. Centrals. 95
12.among them is the choice of institutional structures to be entrusted with enforcement.95s. 95
13.These are typically either the courts or administrative agencies that could, in their turn,s. 95
14.be subject to more or less comprehensive judicial review. Another element ofs. 95
15.enforcement is the access provided of the affected actors to the institutions ofs. 95
16.enforcement. Any form of legal enforcement carefully defines the circle of individualss. 95
17.and organizations that are authorized to trigger enforcement (standing). Finally, ins. 95
18.some systems remedies tend to be viewed as part of enforcement and in others as parts. 95
19.of substantive law. In this study they are going to be uniformly treated in the sectionss. 95
20.on enforcement, since it could be argued that remedies provide the most importants. 95
21.incentives for making use of the enforcement opportunities, thus influencing thes. 95
22.benefits of participation. 2.3 Merging the institutional and the agency perspective The approaches promoted by North and Komesar may be perceived as incompatible and in a sense even diametrically opposite. They adopt different time perspectives and largely pursue different goals. Whereas North purports to explain incremental historical change, Komesar is interested in situation-specific, every day policy decision-making. North’s analysis is prevailingly explanatory, while Komesar’s approach is explicitly normative. The latter’s ambition is to provide an operative analytical framework that can generate policy advice on divergent public policy issues. Historical institutionalism focuses on the role of institutions and thus attaches secondary importance to agents and interests. By contrast, comparative institutional analysis emphasizes interests and participants. Thereby institutions and institutional processes are treated as given. In general, the story told by historical institutionalism is one about institutions as constraints on human behaviour, whereas comparative institutional analysis tells us about individuals who collectively use and shape institutions according to their interests. Yet despite this prima facie incompatibility, I shall argue that the two approaches in many respects may be seen as complementary and mutually supportive of each other. The evolutionary approach advanced by historical institutionalism allows us to see national institutions as products of an incremental process of institutional change that does not necessarily increase efficiency, but may sustain inefficient institutional solutions (lock-ins). Institutions are in this theoretical perspective embedded in, and to a great extent determined by, a broader institutional context. In that context constitutional constraints, dominant perceptions about the role of government and public administration, as well as the divide between public and private, come into play. Historical institutionalism also directs the attention to organizations that have evolved as products of institutional frameworks and live in symbiosis with it. It provides rigorous explanation for often observed instances of resistance to institutional change despite declared political will to the contrary. At the same time, historical institutionalism does not tell us when situations of ‘lock in’ would be most persistent and difficult to dismantle. Indeed, in his Nobel Prize lecture North explicitly addressed the problem of bargaining strength when discussing the process of creating formal rules (the legislative process). But it was never North’s purpose to offer the analytical tools for studying such problems. In this respect the participation-centred approach advanced by Komesar represents a welcome opportunity for refinement of historical institutionalism. The combined approach urges us to inquire deeper into the interests lying behind each law and public policy issue, as well as into opportunities for these interests to be adequately represented in the relevant institutional decision-making processes.97 The framework for analysis of costs and benefits of participation in relation to the decision-making process, to the interests and to the issue involved, presents a rigorouss. 95
23.tool-box for diagnosing instances of persistent institutional malfunctioning and,s. 100
24.respectively, of situations more ripe for change in accordance with the preferences ofs. 100
25.the actors concerned. Komesar is thus not only critical of simplistic evolutionarys. 100
26.approaches that predict stable move towards efficiency, but moreover has a convincings. 100
27.answer as to when such predictions tend to fail:s. 100
28.In a similar way historical institutionalism may offer a useful complementarys. 100
29.perspective to the somewhat sweeping ‘cure-all’ stance lurking in Komesar’ss. 100
30.approach. The approach advanced by Komesar offers powerful insights into thes. 100
31.comparative advantages and disadvantages of different decision-making process, ands. 100
32.moreover in relation to different policy settings. The analytical framework advanceds. 100
33.by Komesar holds the promise of a universal formula to guide the difficult choices. 100
34.between - admittedly imperfect - institutional alternatives for the efficients. 100
35.implementation of social goals." The somewhat instrumentalist predisposition hiddens. 100
36.in Komesar’s approach is appealing to lawyers who are accustomed to looking at laws. 100
37.as an instrument to change social reality. Here, however, historical institutionalisms. 100
38.may introduce a healthy and sobering influence. It warns against naively trusting thes. 100
39.efficiency of instrumentalist approaches to law and public policy. Even well-informeds. 100
40.and well-intended choice between decision-making alternatives may eventually remains. 100
41.entrenched in inherited institutional solutions. Therefore, endeavours such as legals. 100
42.reform, legal transplants and harmonisation of law need to take the stumblings. 100
43.interference of institutional legacies and inertia into account.s. 100
44.One problem with the linking of perspectives lies in that the concept ‘institution’ iss. 100
45.used differently by the two theorists. This only underscores the hidden risks in using as. 100
46.concept that has already been employed in different scholarly and conventionals. 100
47.contexts. As noted above, Komesar uses the concept ‘institution’ in a broad senses. 100
48.referring to three main decision-making processes, namely the market, the politicals. 100
49.process and the courts. This conforms with the understanding of the concept in as. 100
50.whole branch of institutional economics, where institutions correspond to distincts. 100
51.forms of organisational arrangement. Williamson, one of the most famous contributorss. 100
52.to the institutional economics and follower of Coase, thus contrasts different forms ofs. 100
53.market organisations, such as firms, relational contracting and atomistic spots. 100
54.markets.100 Likewise, Komesar suggests that the macro institutional processes he tackles could be sub-divided for analytical purposes to include trade unions, large corporations, etc. North’s definition of institution as presented earlier in this study is clearly more extensive than that of Komesar, covering formal rules, informal constraints and the enforcement characteristics of both. North particularly insists that it is essential for his framework to distinguish between institutions and organisations. Organisations are the agents of institutional change, whereas institutions represent constraints that shape the conduct of organisations. As I explained in the introduction, I find this second definition more convincing, since it captures the essence of institutions as structuring human behaviour. Moreover, it appears more practicable for the purposes of the present investigation (given the broad comparative approach and the goal to conceptualise legal change). In order to maintain a consistent terminology throughout this study, I will in the following substitute the term institution in Komesar’s sense by the terms ‘decision-making process’ or ‘system’. I am confident that this terminological substitution will not do injustice to Komesar’s conceptual framework. Komesar himself often uses the term ‘process’ interchangeably with ‘institution’. He also insists on the central role of Coase for his framework (and the analysis of Coase is often called ‘comparative system approach’).101 Combining the two approaches appears particularly attractive for this study. Historical institutionalism provides the intellectual macro-frame, helping us to conceptualise long-term phenomena such as institutional persistence and processes of incremental institutional change such as Europeanisation. The participation-centred approach in its turn offers a practical toolbox for micro analysis of specific institutional solutions - and of enforcement mechanisms in particular - in terms of their effect on the costs and benefits of actor participation and representation. The combination of the two is expected to allow for a rigorous analysis of divergent institutional solutions to fair trading in a broad comparative, European context.s. 100
The importance of enforcement mechanisms
1.There are several specific intersections between historical institutionalism and the participation-centred approach in comparative institutional analysis. The first one concerns the view of enforcement. In economic terms, enforcement provides the link between actors, organizations and rules. Historical institutionalism demonstrates how institutional frameworks (and enforcement opportunities provided thereof) may produce incentives for new organizations that benefit from the institutional framework and through symbiotic relations contribute to its perpetuation and, finally, to lock-in. The participation centred approach suggests that such lock-ins are more likely to occur where the political process suffers of representation malfunctions. In situations conducive to minoritarian bias, the political process is likely to produce formal rules and enforcement mechanisms that excessively favour minority groups at the expense of the majority. The more dispersed and low the stakes of the majority, the more such arrangements are likely to persist. On the other hand, majoritarian bias may assume the form of governmental intervention (e.g. public agency action) shouldering the interest of the majority and converting a skewed distribution into a uniform high distribution of stakes.s. 101
Adaptive efficiency and participation-centred approach
1.The most important intersection between the two approaches appears to lie in thes. 102
2.understanding of efficiency. Both historical institutionalism and the comparatives. 102
3.institutional analysis advanced by Komesar are characterized by an unorthodox views. 102
4.on efficiency. North in particular elaborates at length on the concept of adaptives. 102
5.efficiency of institutions, according to which efficiency is equalled with generating thes. 102
6.highest possible number of trials. This concept can be seen as coming close to thes. 102
7.participation-centred approach advanced by Komesar. Efficient representation of alls. 102
8.interests concerned in the decision-making processes and at all levels, both in rules. 102
9.making and enforcement, is arguably intimately related, if not synonymous, withs. 102
10.ability to generate a high number of trials. Efficient representation will per definitions. 102
11.imply high interest awareness and will supposedly bring about challenge of thes. 102
12.institutional framework with any perceived inefficiency. Like the analysis of Komesar,s. 102
13.North’s conceptualisation also finds a productive conjunction between economics,s. 102
14.politics and law by demonstrating the immediate economic importance of democratics. 102
15.government and institutions.s. 102
16.If we try to translate this normative component into legal terms, then the question mays. 102
17.be: how do we shape legal rules and enforcement mechanisms which can betters. 102
18.account for all interests involved and avoid unproductive lock-ins? Cast in these terms,s. 102
19.the concept of ‘adaptive efficiency’ becomes much clearer and appealing for legals. 102
20.analysis. Success in economic history is associated with legal and political institutionss. 102
21.including rules on enforcement that have rendered the institutional framework mores. 102
22.responsive to changing preferences and costs, assuring more adequate interests. 102
23.representation and making room for new interests and actors as they emerge. Broads. 102
24.representation through democratic procedures thus receives a concrete economics. 102
25.meaning, as it contributes to improved economic performance through better capturings. 102
26.and reflecting the preferences of involved interests. The concept ‘deliberation’ familiars. 102
27.from legal and political science is close to mind.s. 102
An institutional perspective on European integration
1.Finally, an institutional perspective allows for a more productive conceptualisation ofs. 102
2.the complex relationship between national law and European law. Also heres. 102
3.combining a participation-centred approach with a historical institutional perspectives. 102
4.promises to give insights in the complex process of continuity and change associateds. 102
5.with European integration and its influence on national institutional frameworks.s. 102
6.Seen from the viewpoint of institutional choice one manifest feature of the Europeans. 102
7.Community project is that it offers new arenas for decision-making. The nationals. 102
8.market flows over into a Common Market. National political and legislative processess. 102
9.are connected by way of dense net of visible and invisible rules to the political processs. 102
10.at the Community level. The European judiciary enters as a new decision-makings. 102
11.institution, concurring with national courts and acting often as an arbiter ands. 102
12.distributor of decision-making competencies between Community and Member Statess. 102
13.as well as between the different Community institutions. For national economic ands. 102
14.political actors European integration inevitably changes the established balance ofs. 102
15.participation, powerfully influencing previously insulated procedures of law-makings. 102
16.and rule-implementation. Obviously the costs and benefits of participation in the European decision-making may vary from those in respective national arrangements. These changes in the domain of institutional choice are going to be explored in more detail when looking at how particular European measures have been implemented at the national level and how do national stake-holders adapt to the change in opportunity set. From a historical institutional perspective the focus is on the different ways in which Europeanisation fits into or challenges long-standing institutional constraints such as ideologies of legal regulation or well-engrained habits in case-law and administrative implementation. Is implementation of European measures disrupting efficient institutional equilibria, causing disarray among the actors involved and decreasing coherence and predictability? Or does it expose inefficient lock-ins and, thus, enhance the adaptiveness of the institutional framework?102 To what extent Europeanisation opens for new variations and possibilities of learning and influencing the framework? And when are we to expect the one or the other eventuality. The whole European project is per definition about institutional change, pursuing openly the effectuation of change in formal legal rules (harmonisation), informal constraints (attitudes in market actors, consumer and European citizens) and enforcement (new mechanisms of enforcement before European and national bodies). A central theme in the Europeanisation debate has been that of convergence or divergence of national legal systems, cultures or regulative approaches in more specific areas. By tracing on the one hand the changed opportunities for participation of affected interests, and on the other, the constraining effects of deeply embedded institutional habits, I hope to be able to shed some new light into this debate.103 When Community law has been approached by traditionally trained national lawyers, this has been done on a sector-specific basis. More recently, attempts have been undertaken to bring the observations of such lawyers together into more structured comparative accounts of Community influence, thus trying to capitalise on the synergies of different national experiences.104 Such studies present parallel accounts of stories that have a common subject but they rarely amount to real joining of different perspectives into a true comparative analysis. The general frame of reference but also the references to literature and legal source material remain national in nature. Thus perceptions about Community influence may dramatically shift from one observer to the next. An in-depth understanding of the effects of Community law seems to require a joining of all these perspectives into one single account. This is both a demanding and exciting perspective. It is demanding by the sheer volume of material to be reviewed and by the quasi-impossible exercise of acquiring adequate understanding about multiple complex legal systems and their environment. At the same time it is exciting for it provides an opportunity to feel the pulse of European integration, to hears. 102
17.the multilingual and multicultural choir of actors and interests that make use or ares. 104
18.affected by this process and to observe an array of incongruent, divergent and oftens. 104
19.unpredicted influences, far away from the ideal world of systemic coherence lawyerss. 104
20.once believed to exist.s. 104
21.2,5 Cross-country comparison of the effects of European integrations. 104
22.It has already been suggested that an analysis of the influence of European law ons. 104
23.national legal systems holds more promise if the process of influence and change iss. 104
24.placed in a broad comparative perspective. If confined to a single legal system, thes. 104
25.results of the study may remain specific to the jurisdiction under analysis and not yields. 104
26.to generalization. At any rate, the comparative approach is better suited to generates. 104
27.findings of broader validity. It also brings the research design closer to the dynamics. 104
28.reality of European integration where Community legal rules and principles are forgeds. 104
29.against a background of divergent national legal and institutional approaches and thens. 104
30.transmitted back for implementation and enforcement in the same nationals. 104
31.environment. Only a comparative analysis of legal change under European influences. 104
32.allows us to test contradictory claims of convergence and divergence of legal systems,s. 104
33.of harmonisation or of disintegrative influences of European law on national law.s. 104
34.A comparative approach, however, is laden with multiple risks and pitfalls ands. 104
35.requires careful consideration of theoretical and methodological premises. Importantly,s. 104
36.one needs to clarify the scope, level and ambition of comparison, to identify thes. 104
37.common denominator and component parts, and finally to elicit possible criteria fors. 104
38.evaluation of the comparative results.s. 104
The purpose of comparison
1.Naturally, comparisons between legal systems or legal institutions can be conducteds. 104
2.with different purposes and with different levels of ambition. Comparative work mays. 104
3.precede and inspire new national legislation (instrumental objective); it may be part ofs. 104
4.the preparation for harmonisation at a regional or international level (harmonisations. 104
5.objective). It has been convincingly argued that in the sphere of economic law,s. 104
6.contemporary comparative law can also perform a third task, namely co-ordinations. 104
7.between different levels of legal orders - the national, the regional and thes. 104
8.international one.105s. 104
9.Partly depending on the underlying objective the ambition and scope of comparatives. 104
10.legal analyses may differ as well. In comparative law a threefold classification ofs. 104
11.comparative analyses has been advanced by Strömholm.106 He distinguishes betweens. 104
12.studies where the comparison serves as a background and inspiration, studies wheres. 104
13.the comparison is the central element and studies being a mixture of the two aboves. 104
14.mentioned categories. In the first category the comparative element has an accidental,s. 104
15.complementary (instrumental) role, while domestic law remains at the core of analysis.s. 104
16.In this category of comparative studies the foreign legal material is used to achieves. 104
17.objectives typical of the conventional positivistic legal research. The desire is to provide answers to problems anchored in one national legal system. Such brief contacts with foreign law and legal institutions may play an important value-oriented role in that they emphasize the commonality of social problems and of legal solutions.107 They enhance the awareness of the relativity of legal concepts and institutes, otherwise conveniently covered by a cloak of unreflected immersion in one domestic legal order. This comparative ‘spicing’ of a legal analysis does not lack methodological intricacies, yet these are far from the fundamental problems which pose themselves if the scope and ambition of comparison are expanded. The real trouble with (and the real challenge of) comparative law begins with lifting the objective of comparison from the national to the cross-national level. It is at this point that the comparison ceases to perform an instrumental role and turns into the main, bearing principle of the research design. In such comparative studies the legal systems under comparison are investigated on an equivalent basis, without taking any of the systems as a self-evident point of departure (or arrival). As Strömholm observes in such studies the comparison is the dominant element. Solutions to similar problems in different legal systems are juxtaposed as equally possible alternatives and examined with a purpose other than finding answers to problems in the framework of one or the other national legal system. It is to this second group of comparative studies that the present analysis belongs. The purpose is not confined to giving recommendations for the solution of practical legal problems of a specific legal system. The interest is rather in the process of co ordination between different legal orders and its broader socio-economic implications. As Strömholm rightly cautions, the pitfalls of such scholarly endeavours are numerous. He notes that such comparative studies are a rare branch of legal science. More seriously, they often risk remaining hollow program declarations with few convincing examples of practical application.108 Yet, in embarking on this study I am still encouraged by Strömholm's tempered optimism that despite the risks, such studies can contribute to increasing the knowledge and understanding of legal phenomena.109 The term ‘comparative law’ has become infamous for the abundance of contributions consisting mainly of dry inventories of legal rules with only schematic attempts at deeper analysis on causes and consequences of legal similarities and differences. The most frequent trap of such studies has been a bias towards uncritical description of black letter rules.110 This profile of the field has largely been predetermined by the unreflecting transposition of the classical ‘dogmatic’ approach to law in the sphere of legal comparison. Yet, whereas within the context of the national legal order description and systematization are always guided by the attempt at improved coherence of legal rules in a given field of law, this purpose cannot fully apply fors. 104
18.comparative studies. The outsider position implicit in ‘genuine comparisons’, i.e.s. 106
19.comparisons that are not only instrumental to the dogmatic analysis of domestic law,s. 106
20.makes the traditionally trained lawyer feel there is no longer solid ground under his ors. 106
21.her feet. The conclusions can no longer be directed at systematic or teleologicals. 106
22.interpretations within a (more or less) closed systemic context.s. 106
23.The key question for large-scale comparative works is therefore what this ‘other’s. 106
24.purpose should be that is not related to solving domestic-law problems? And mores. 106
25.importantly, are there ‘other’ purposes that could be legitimately and convincinglys. 106
26.pursued by lawyers, given the specific character of their discipline? Some of the mosts. 106
27.influential writers in comparative law, who have set their intellectual mark on wholes. 106
28.generations of comparatists, tend to address such questions with admirable lights. 106
29.headedness, seemingly unconcerned about the methodological and theoreticals. 106
30.difficulties implied. Thus Zweigert and Kötz in their much quoted treatise ons. 106
31.Comparative Law regard the principal aim of comparative law in its ‘theoretical-s. 106
32.descriptive’ form to be ‘to say how and why certain legal systems are different ors. 106
33.alike’?11 In the conclusion of their chapter on the method of comparative law, thes. 106
34.authors briefly discuss another objective of comparative law, namely offering a criticals. 106
35.evaluation of the results from a comparison. However, they do not elaborate on thes. 106
36.basis for such an evaluation. Should the criterion be deduced from legal policys. 106
37.objectives as defined by the national law-maker, or should the starting point be soughts. 106
38.somewhere else? Might the comparatist even outline his or her own normative set ofs. 106
39.priorities? 112s. 106
40.Other comparative law scholars subscribe to a similar understanding of researchs. 106
41.objectives. According to Bogdan comparative law encompasses:s. 106
42.Obviously, whereas purely descriptive accounts of similarities and differences may bes. 106
43.satisfactorily provided with the traditional tools of dogmatic legal analysis, the goalss. 106
44.of explaining interrelations, highlighting reasons and providing evaluation (‘how’,s. 106
45.‘why’, and ‘which is better’) constitute a challenge for lawyers on both theoretical ands. 106
46.methodological levels.114s. 106
47.61 The research question in such ‘genuine’ comparative studies is no longer of the same category as research questions in traditional dogmatic research. Respectively, new research questions require recourse to new theoretical and methodological tools. This is generally acknowledged by comparative lawyers. Indeed, Zweigert and Kötz see a room for productive use of the methods of legal sociology in comparative research.115 Likewise at a recent symposium on the future of comparative law, Reitz observed the drive inherent in comparative law studies towards higher levels of abstraction and to the neighbouring ‘law and’ disciplines.116 The inherent interdisciplinarity of comparative law was eloquently praised already by Ernst Rabel in his early appeals to comparative lawyers to constantly broaden their horizons: Yet it is one thing to broadly agree on the usefulness of contextual analysis, and quite another to offer a pragmatic and feasible programme for such integrative research design. Rabel’s agenda, if put into action, would in the first place present insurmountable feasibility problems. It would take a lawyer endowed with a superior intellect, or at least a highly encyclopaedic mind, to conform even to part of his requirements. But what is even more knotty, the use of the neighbouring disciplines risks to be met with utmost scepticism and criticism from all quarters, unless it complies with rigorous methodological criteria. Here new questions arise: Should the lawyer only take the findings of the neighbouring disciplines as given and use them only as a source of inspiration for contextualising one’s own observations? Or should one be more ambitious and try to master the methodology of other social sciences and then conduct original research on the basis of the comparative material at hand? In this case, what norms of selection of source material and processing should apply? Shall one apply those valid in legal research or those of the respective social discipline? These are not easy questions and few comparative law scholars have ever ventured to suggest an answer. Thus, on the one hand, the use of social sciences in legal comparison remains quite limited. On the other hand, most comparative lawyerss. 107
48.62s. 119
49.attempting some integration of disciplines tend to downplay the importance of thes. 119
50.interdisciplinary element in their work and avoid theorising methodological issues.s. 119
51.They are quick to point that they do not have a genuinely interdisciplinary ambitions. 119
52.and that the neighbouring disciplines are only used as background and inspiration. Fors. 119
53.the most part the intertwining of disciplines thus proceeds on an intuitive level.s. 119
54.As indicated above, the approach taken in this study is overtly interdisciplinary as wells. 119
55.as comparative. I thereby embrace the view that any comparative evaluation ands. 119
56.analysis, with ambitions beyond the mere description of legal rules, can profits. 119
57.considerably from utilising insights and methods from other social disciplines.s. 119
58.Genuine comparisons imply abandoning the ‘insider’ perspective. The analyst thens. 119
59.needs a ‘fulcrum’ and a ‘lever’, i.e. a firm basis and special tools that make the task ofs. 119
60.an outsider comparison possible. These cannot be found in the methods of legals. 119
61.dogmatics because the latter presupposes treating national law as a closed and (mores. 119
62.or less) coherent system of rules. It is submitted that the key should instead be soughts. 119
63.in neighbouring social disciplines such as legal theory, legal history, legal sociology,s. 119
64.law and economics. The choice of discipline obviously depends on the category of laws. 119
65.and subject matter studied, but also on the purposes and the research question of thes. 119
66.study.s. 119
From comparing rules to comparing institutions
1.There are several advantages in taking an institutional approach to comparative law.s. 119
2.The Komesarian type of comparative institutional analysis outlined above arguablys. 119
3.provides a convenient basis for comparison between different legal and regulatives. 119
4.approaches on a cross-country basis. Using participation costs and benefits as as. 119
5.common unit of analysis provides the common denominator needed for comparatives. 119
6.legal studies. It also offers a point of orientation for the normative evaluation ofs. 119
7.alternative institutional approaches. At the same time the opposite is also true. Crosss. 119
8.country legal comparison gives an opportunity to compare concrete institutionals. 119
9.solutions in their historical context and as applied in practical life, so that they do nots. 119
10.remain abstract alternatives.118.s. 119
11.Yet a cross country comparison also exposes some of the weaknesses of Komesar’ss. 119
12.analysis, namely the underlying assumption that institutional choice can be exerciseds. 119
13.in an instrumentalist manner. The approach is thus insensitive to endowed positionss. 119
14.and historical contingencies.119 The combination of a cross-country legal comparisons. 119
15.and a historical institutional perspective is designed to compensate for this deficiency.s. 119
16.Comparative law is often accused of uncritically accepting evolutionary theories ofs. 119
17.law and society. Classical exponents of the discipline nurture a vision of universals. 119
18.convergence of law and a unilinear progress. In this respect the discipline has inheriteds. 119
19.an evolutionist and deterministic bias. Historical institutionalism exhibits a differents. 119
20.kind of determinism, namely that societies often follow a trajectory which determiness. 119
21.historical developments in institutional life. Institutional and legal evolution iss. 119
22.63 constrained by events and decisions of the past, whereby chance and accident may also play a role.120s. 124
The institutional approach and theories of legal change
1.In legal theory and in comparative law in particular there has been a lively debate on the relevance of societal context of legal change.121 Legal historians like Alan Watson, taking a long-term perspective, have tried to demonstrate the continuity of law despite changing social-political contexts. Watson has stressed the autonomy of legal rules and institutions and the possibility of ‘transplanting’ law irrespective of divergent social political contexts.122 Other comparatists, such as Otto Kahn-Freund, have proposed a context-sensitive approach to the study of legal reform differentiating between separate fields of law. Having conducted research on legal regulation characteristic of the modern welfare state, Kahn-Freund underlined the importance of taking account of the social-political context (constitutional and political order) in areas where pressure groups and political interests exert powerful influence. Naturally, one source of confusion in such a debate can be, and often is, the very concept of legal transplants and what is meant by ‘possibility’ or ‘success’ of legal transplants. As Kahn-Freund has observed, the notion of ‘legal transplant’ suggests that we have to do with living, ‘organic’ matter. This in turn presumes a sociological view of law. If by legal transplants we merely mean the mechanical transfer of written provisions, the searchlight would be directed at ‘law in the books’. But for such purposes the proper term ought to be ‘legal borrowings’ to avoid confusion with massive, purposeful transfer of law (and legal culture). This simple distinction could clarify a lot of misunderstandings in contemporary comparative law methodology. The different conclusions of the two authors are apparently dependent on the legal areas that form the subject of the bulk of their own work. While Kahn-Freund (despite his broad competence), has been most prolific in the area of industrial relations, which is also at the centre of his 1974 article, Watson is an expert in Roman law and has mainly dealt with tracing the Roman law origin of many doctrines in contemporary European civil law.123 In his argumentation Kahn-Freund is clearly aware of the importance of the specifics of each legal area, and speaks of a continuum of legal rules and areas from ‘organic matter’ where the concept transplant is appropriate, to ‘mechanical matter’ where one can speak of a simple change (e.g. of a carburettor).124 When seen in the light of these distinctions the debate between Watson and Kahn Freund in fact appears to be a non-debate. Kahn-Freund, while not fully subscribing tos. 124
2.64s. 125
3.Montesquieu’s ambitious view on compatibility on law’s contingency on its social ands. 125
4.physical environment, believes in the deep connections between law and underlyings. 125
5.societal structures and conditions. In contrast, Watson seems fascinated by thes. 125
6.‘textual’ tenacity of legal rules and their tendency to migrate. If Kahn-Freund arguess. 125
7.normatively that context should be respected, particularly when political and groups. 125
8.interests are involved, Watson focuses on empirically demonstrating that legal ruless. 125
9.are in fact borrowed and survive ‘textually’ irrespective of gross differences ins. 125
10.context. The latter evidence, however, does not contradict the normative advices. 125
11.inherent in Kahn-Freund’s analysis. It only underscores the important fact that law iss. 125
12.often a product of autonomous processes and that the members of the legal profession,s. 125
13.rather than posing as ‘creators’ of rules, choose to refer to the authority of foreigns. 125
14.normative solutions.s. 125
15.Even if we take Watson’s arguments to suggest that transferred rules in fact can works. 125
16.similarly in widely divergent contexts, this claim is not necessarily incompatible withs. 125
17.Kahn-Freund’s arguments. From an institutional perspective the two claims are nots. 125
18.mutually exclusive and possibly even harmonious. Both authors agree on thes. 125
19.importance of law as an institution. In the area of core private law, where the mains. 125
20.interests of Watson lie, one might from an institutional economics perspective argues. 125
21.that law performs the function of assigning initial property-rights in a world ofs. 125
22.individual exchange with low transaction costs. Following Coase, the main role of laws. 125
23.is to determine the initial allocation of property rights, where efficient outcomes woulds. 125
24.anyway be achieved through bargaining between actors. In other words, the rule itselfs. 125
25.is not important, but the very existence of the rule and the certainty it creates helps. 125
26.actors to arrive at mutually advantageous solutions. This may explain the lack ofs. 125
27.resistance (apart from, nowadays, resistance from legal professional circles) to transfers. 125
28.of legal rules.s. 125
29.In contrast, industrial relations, as much of economic regulation produced in thes. 125
30.modern welfare state, have aimed at coping with problems of transaction costs,s. 125
31.externalities and market failures. In this case the political and legal systems have beens. 125
32.challenged to step in as alternative institutions to the market. However, the sames. 125
33.transaction cost problem has plagued these alternative processes. The solution has thens. 125
34.been dependent on the political system and its particular constitutional design, on thes. 125
35.availability of interest groups, the possibility for collective interest representation ins. 125
36.the political and judicial processes.s. 125
37.An institutional economic analysis thus hints at some answers to the puzzle of varyings. 125
38.rules and their ‘transplantability’. The more rules are connected to public goods ands. 125
39.complex processes, involving high number of actors, low transparency, highs. 125
40.transaction costs and requiring a high degree of human cooperation, the more difficults. 125
41.is the transfer of solutions. Even if formal rules may be borrowed in these situations,s. 125
42.their integration in the institutional environment may produce very different results.s. 125
43.In summing up, whereas Kahn-Freund emphasizes interests and institutional structuress. 125
44.and thus is close to the participation approach advanced by Komesar, Watsons. 125
45.emphasizes continuity, the decisive influence of the legal profession and the self-s. 125
46.referentiality of law, as well as the detachedness of law from its immediate politicals. 125
47.65 context and interest struggles. It therefore seems fair to say that Watson’s understanding of legal change has affinities with historical institutionalism. 2.6 Methodological aspectss. 126
Methodological intricacies of contextualism
1.Acquiescence to the desirability of analyzing the context of law does not necessarily mean denying all the theoretical, methodological and epistemological difficulties associated with such an enterprise. The traditional method of legal dogmatics does not offer the requisite methodological tools for studying the context of law. Dogmatic analysis operates with a largely fictive model of legal rules forming a coherent, non contradictory whole (system), and thus confines the role of legal scholarship to perfecting this coherence. There are actually interesting parallels between perfect competition models in economic theory and the systemic coherence model of positivistic legal theory. Users of either theory admit that their models depart from reality but note that these second-best alternative are workable and hold promise due to their inherent normative character. As always with interdisciplinary adventures, one of the main problems that the analyst faces is the availability of not just one, but plentiful, versions of the invoked ‘alien’ social discipline. The temporary ‘visitor’ in the field is thus forced to choose between various controversial views and interpretations, what we might call the selection problem of interdisciplinary analysis. One need not subscribe to sophisticated views of self-reference (autopoeisis) of highly differentiated social spheres to realize that discourses in economics or in political science are often specific, dynamic and ‘selfreferential.’ In order to be applied to the study of law, economic theory needs to be funnelled into an applicable model, which inevitably implies reduction of the complexity of the respective discipline at the expense of possible distortion. Whereas this problem should not be underestimated, I nevertheless believe that it should not be exaggerated either. Finally, reduction of complexity is at the heart of every scholarly endeavour and is not exclusive to interdisciplinary analysis. In legal scholarship, sceptics hold that interdisciplinary studies more easily fall into the trap of ex post selection and adjustment of theoretical frames to desired results. While there may be some truth in this accusation, rejecting contextual analysis on such grounds would be equal to embracing a highly unrealistic epistemological ideal of science that hardly can be met by mono-disciplinary studies either. Many contemporary theorists of science believe that social sciences at best can provide convincing reconstructions of reality, but that it would be erroneous to measure scholarly success with the yardstick of natural sciences and respective claims at correspondence to objective truth.125 Finally, one should not loose sight of the different discourses characterizing law and economic theory respectively. Joerges warns against rapid and unreflected transposition of arguments from the one field into the other. Legal analysis is inherently normative. What is required is careful fine-tuning and translation of thes. 126
2.66s. 128
3.economic jargon to practicable tools for legal analysis.126 The need for cautiouss. 128
4.interpretation is well-expressed by Buxbaum:s. 128
5.Methodologically, the institutional approach taken in this study has implied two majors. 128
6.deviations from traditional dogmatic methods. The first one is represented by thes. 128
7.extensive historical accounts on the legal developments, especially in Germany ands. 128
8.Sweden. While historical reviews are often part of legal analysis, these accountss. 128
9.remain cursory and only perform a background function. In this study the historicals. 128
10.accounts serve to demonstrate deeply seated national institutional constraints and ares. 128
11.so part and parcel of the method. The historicisation of institutions aims to discloses. 128
12.continuity in legal institutions and to exhibit possible symbiotic relations betweens. 128
13.institutions and organisations. Moreover, in contrast to classical treatments of legals. 128
14.history, which mainly deal with changes in legal rules, the focus in this study is ons. 128
15.interests and interest representation in the legislative process.s. 128
16.A second methodological concession is the treatment of legal material not only as as. 128
17.source of dogmatic interpretation, but also as evidence of prevailing ideals ands. 128
18.ideologies. The analysis at points comes close to a ‘discursive’ one, which accountss. 128
19.for the abundant quotations from original sources, such as preparatory material,s. 128
20.parliamentary discussions and judicial decisions.s. 128
The use of the comparative legal method
1.The choice and treatment of sources is also influenced by the comparative perspectives. 128
2.embraced in this study. To begin with, we have two legal systems with two sets ofs. 128
3.legal source material and their distinctive modes of production, interpretation ands. 128
4.enforcement of legal norms. A basic principle of comparative law methodology is thats. 128
5.each norm is analysed from the viewpoint of the domestic legal system of which it is as. 128
6.part.128 In the following I have tried to utilise original source material, as well as tos. 128
7.respect the integrity of each system and to immerse myself in the German and Swedishs. 128
8.legal discourse, to the greatest extent possible.s. 128
9.This has implied paying more attention to preparatory legislative material (travauxs. 128
10.préparatoires) in the Swedish context, and making more extensive use of doctrinals. 128
11.reasoning when discussing German law. When approaching precedents ands. 128
12.interpretation of general clauses, the account on German developments reflects thes. 128
13.deductive way of reasoning characteristic of German lawyers. Turning to Sweden, Is. 128
14.have been less concerned with systematic categorisations in view of the pragmatic ands. 128
15.functional approach distinctive of this country’s fair trading law. Given the keys. 128
16.position of public institutions in the Swedish model of fair trading law, thes. 128
17.67 administrative practice of the KOV has been frequently invoked. Attention has likewise been given to non-binding decisions of self-regulatory bodies and administrative guidelines in Sweden. In any comparative legal study language and terminology are issues to be seriously considered. From one country to another the legal terminology will inevitably differ as will the more general philosophical notions on which law is based. Comparatists caution against falling into the trap of equating homonyms that conceal deep differences in substance and systemic connotations. The problem is further complicated when two legal systems are analysed in a language belonging to a third one, in my case English (and I was first trained as a Bulgarian lawyer). As far as possible I have tried to translate German and Swedish legal terms into English. In order to preserve as much linguistic precision as possible, though, I have provided the reader with the equivalent in the original language.129 Furthermore, I have attempted to suppress unnecessary ‘disturbance’ by avoiding legal concepts predominantly applied in Anglo-Saxon (notably common law) legal scholarship. Comparative law is premised on the principle of equivalence of units that form part of the study. Constantinesco underscores the importance of constructing and following a common comparative scheme when moving to detailed analysis?30 This scheme should be based on concepts that are sufficiently broad to accommodate variations of legal rules and institutes in the systems under investigation. In order to conform to this methodological advice, I have subdivided the study according to two main criteria. Chronologically, the study is divided into three parts: the origins of fair trading, the consumerist wave and its implications and, finally, the era of Europeanisation. Analytically, each of the three parts encompasses an examination of substantive rules, enforcement and the evolving standards of fairness. The institutional approach adopted in this study has led me to envelop each of the parts examining the legal sources within a contextualizing frame in which broader issues are treated. More precisely, each of the parts is preceded by a section elaborating the institutional context in which fair trading law evolves, and a concluding section summarizing the key findings from the viewpoint of the institutional approach in the study (with emphasis on institutional choice, participation in alternative decision making processes and path dependence). The two units of comparison, Germany and Sweden, have been treated successively and separately in the first two chronological parts (discussing origins of fair trading and consumerism). Reflecting the interweaving with European legal developments in recent years, however, the two countries are examined simultaneously in the final part.131 Last but not least, any comparative study, including a legal one has to explicitly or implicitly confront and solve the problem of comparability. This requires a carefuls. 129
18.68s. 137
19.selection and delineation of a common denominator (tertium comparationis), i.e. of as. 137
20.controlled variable, that has to be kept constant throughout the analysis.132 Mainstreams. 137
21.comparative lawyers find the common denominator in the common function of legals. 137
22.rules. Zweigert and Kötz are particularly categorical that “in law the only things whichs. 137
23.are comparable are those that fulfil the same function.”133 Function is, in turn, defineds. 137
24.as the factual situation (or the problem) legal rules and legal institutes intend tos. 137
25.regulate.134 Two rules have consequently a common function if they concern “thes. 137
26.same segments in life.”135 Whereas it appears exaggerated to claim such exclusivity fors. 137
27.function as a controlled variable for comparative legal analysis, it certainly provides as. 137
28.more solid point of departure than commonality in concepts or in origin.136 For thes. 137
29.present study the common denominator has been found in commercial information ands. 137
30.communication within the pre-contractual sphere. These are the ‘segments of life’ thats. 137
31.are at the heart of different national rules and institutes pertaining to what I broadlys. 137
32.define as fair trading law. I will draw additional limitations to this subject in the nexts. 137
33.chapter where I also turn to economic theories for analysis of the phenomenas. 137
34.described.s. 137
35.Another intricacy of the problem of comparability pertinently highlighted by Bogdans. 137
36.consists in the need to distinguish between the function of legal rules and theirs. 137
37.legal/political purpose. According to Bogdan, comparative evaluation, or in others. 137
38.words normative comparative analysis, can be credibly made only if one cans. 137
39.reasonably assume that the objectives of the compared legal systems (and rules) ares. 137
40.identical (or similar).137 The institutional approach advanced in this study turns thes. 137
41.interests and legal policy objectives behind legal rules into an independent object ofs. 137
42.analysis and thus gurantees a sensitivity for differences of objective. As to normatives. 137
43.evaluation, indeed it has to be underscored that the purpose of this study is mainlys. 137
44.descriptive and explanatory, and only weakly normative inasmuch as I reflect on thes. 137
45.importance of adaptive efficiency of institutional frameworks.s. 137
46.69s. 138
Fair Trading: comparing the market, the political and the judicial
1.The main purpose of this chapter is to relate the categories and analytical tools presented above to the area of fair trading. More specifically, I wish to provide an illustration of the comparative institutional analysis advanced by Komesar, which forms the inner, ‘microanalytical’, part of the analytical framework. The outer, macroanalytical frame, building on historical institutionalism, will not be treated here since it per definition can only be applied in relation to a specific historic institutional context. I first introduce the concept of fair trading and the regulative issues it involves, thereby defining the focus of the present study (3.1). Then the market is analysed as a decision making process for setting the standards of fair trading (3.2). The performance of the market is examined in respect to information, communication and trust in order to use this analysis as a point of orientation when comparing this performance with the political process and the judiciary. The analytical tools are borrowed from information economic theory. Information economics is preferred as the approach offering most convincing conceptualisation of the role of information in the marketplace. Information economics brings marketing in general, and advertising in particular, in relation to the costs and benefits of information for market actors. It thus fits neatly into the participation-centred approach advocated by Komesar. More specifically, I scrutinize the estimates derived from economic theory about the potential of the market to achieve a quantity and quality of information that adequately reflects the preferences of the participating actors. The question is: what are the advantages and disadvantages of the market as an institutional system for determining the standard of fairness in marketing? Can we identify instances where the market fails and - at least theoretically - a question arises whether it can be substituted for an alternative institutional solution? Although market conditions may differ from one country to another, the economic reasoning in this section in principle applies to all states with a relatively free (or mixed) market economy. Therefore the findings should mutatis mutandi be relevant for both countries under analysis. The economic analysis is expected to give us a starting point for the individual country analyses and a benchmark with the help of which to tentatively judge the performance of institutional frameworks relying on the political process, on the courts or on administrative agencies. In a next section (3.3) I briefly examine the prospects for the political process to ‘correct’ or complement the market in cases of information and communication failures, notably through specific legislation. Following the comparative systems approach advanced by Komesar, I map out the interests typically affected by fair trading laws and inquire into the opportunities for adequate participation of these interests in the political process. Proceeding from Komesar’s taxonomy over possible distortions in interest representation in the political process, an extrapolative assessment is made for the area of fair trading. The two categories—majoritarian and minoritarian bias—are employed when discussing the most widely perceived risks for political mål-representation.s. 138
2.70s. 139
3.Concluding this chapter (3.4), I direct the attention to the courts and to administratives. 139
4.agencies as the institutions most commonly entrusted with the implementation ands. 139
5.refinement of the standards of fair trading. Proceeding from the interest structure ins. 139
6.some typical situations of unfair trading, the potential advantages and disadvantages ofs. 139
7.these instiutions from the vantagepoint of participation and representation are outlined.s. 139
8.Like the analysis of the market, also the analyses of the political, judicial and thes. 139
9.administrative process are in this chapter conducted at an abstract (systemic) level ands. 139
10.without reference to any particular country. The alternative decision-making systemss. 139
11.are treated in accordance with their most general and common characteristics. Thes. 139
12.purpose is to obtain a categorization of potential distortions associated with each ofs. 139
13.these processes, later to be confirmed or refuted by the detailed country analyses. Ofs. 139
14.course such an analysis is detached from reality. As Komesar notes “the pattern ofs. 139
15.governmental (and we can add judicial) behaviour is not random, it can be affected bys. 139
16.the design of government and predicted by an analysis that takes into account thes. 139
17.interaction between the features of that design and the characteristics of the socials. 139
18.issues in question.”138s. 139
19.As the in-depth instistutional analyses will show, the judicial and administratives. 139
20.processes can be differently designed from one legal and institutional system tos. 139
21.another. More importantly, decision-making processes and institutional choices ares. 139
22.embedded in a broader institutional framework, which is highly path-dependent.s. 139
23.Therefore the normative advice from comparative institutional analysis should alwayss. 139
24.be put into perspective. The short-term, microanalysis of interests and participations. 139
25.needs to be combined with the long-term, macro perspective of embeddedness ands. 139
26.path-dependence. Only then, the complex process of persistence and change of legals. 139
27.institutions can be more realistically captured.s. 139
28.3.1 Fair trading law as a patchwork area in focuss. 139
29.Honesty and trust are virtues, whose overall importance for economic life has beens. 139
30.appreciated at a very early stage in human history. Societies have in all times produceds. 139
31.institutions - formal and informal, deliberately created and spontaneously evolving -s. 139
32.for promoting fair trading, although with differential success. Family bonds and groups. 139
33.belonging have been a source of trust in early commerce, supported by possibilities fors. 139
34.reputation, stigma and ostracism. The guilds with their strict rules of access ands. 139
35.conduct took care of fair trading in the late medieval and mercantilist eras. With thes. 139
36.advance of modern industrial society, these communitarian institutions based on closes. 139
37.personal communication were strained. Exchange between anonymous actors replaceds. 139
38.the local market, while consumer products grew in number and complexity ands. 139
39.impediments to cross-border trade were lifted.139 Significantly, the community ofs. 139
40.market actors and consumers became less homogenous, hosting a wide diversity ofs. 139
41.value-systems and expectations. The standards of fair trading changed and theirs. 139
42.enforcement gradually required new institutional arrangements. Some of these weres. 139
43.provided by the market, whereas others could be supplied through alternative decisions. 139
44.making processes, such as the judicial systems or administrative control.s. 139
45.71 Fair trading is of relevance for all spheres of economic exchange from production via marketing and contract formation, to performance and after-sale service. For the purposes of this study, however, the term fair trading is narrowed down to rules, practices and procedures that ensure bona fide standards of commercial communications. We are, in other words, in the sphere of marketing and advertising, at the stage prior to a contract being signed. Truthful and non-deceptive market information is a generally accepted element of fair trading so defined. But there are also other, more or less controversial, values that may be (and occasionally have been) integrated in the standards of fair trading. Some of these gravitate toward the sphere of relations between competitors. A time-hounoured virtue is never to sell or market products which imitate or approximate that of competitors. Furthermore, the use of defamatory, personal or aggressive advetising or mere reference to competitive products, represent practices that have been banished as unfair conduct for decades. Other values have more to do with the relations between competitors and consumers. Here we can mention transparency of commercial communication, disclosure of relevant and important information, respect for the personal sphere of customers, and account for limitations in certain consumer groups’ abilities to adequately perceive and react to an advert (children, elderly, sick). Finally, on a more general level, advertising and marketing are increasingly charged with meeting general public interest objectives. Contemporary marketing is often expected to show respect for human dignity and personal integrity, not to promote illegal or otherwise undesirable conduct (such as conduct detrimental to human health or to the environment), to comply with statutory prohibitions and other legal requirements. As we are going to see in the following, the understanding of what is or should be covered by the concept of fair trading has been changing in pace with changing societal conditions, even if some standards are more persistant than others. Given the fluid borders of the area under analysis, the demarcation lines of the present study should be more clearly defined. The focus is on rules and practices that do not primarily concern the interests of individual competitors, but instead directly affect collective (group) and public interests. Thus rules on misappropriation, slavish imitation, passing off and trade secrets, as much as they form the core of the original national and international regimes of fair trading, are deliberately excluded from the scope of this study. These institutions of fair trading once emerged as liability rules, seeking to establish quasi-property rights in different badges of trade and to complement a still evolving system of protection of intellectual property rights. The purpose was (and still is) to provide supplementary protection for trade names, indications of origin, unregistered trademarks, but also for other creations that did not meet the stringent requirements of exlcusive intellectual property rights. These rules will mainly be considered when drawing up the profile of a particular national system of fair trading law. The cases I am interested in concern collective choices and involve group or public interests. These are cases of ‘big numbers’ and occasionally of skewed distribution of stakes, to use Komesar’s categorization. Whether an advertising message should be prohibited as misleading or unfair is a question that typically affects not just the parties of a dispute, but broader groups of competitors and the broad consuming public as well. It is impossible to confine the effects of such decisions exclusively (ors. 140
46.72s. 141
47.prevailingly) to private parties. It is these cases that require cooperative solutionss. 141
48.through organization and/or representation. The control over diffuse interests, overs. 141
49.their identification, formulation and representation can be described as ‘loose.’ Thes. 141
50.incentives for participation and representation are not always clear or at hand.s. 141
51.Decision-making is thus a difficult and highly imperfect process irrespective of thes. 141
52.particular decision-making process preferred. Neither markets, nor political process ors. 141
53.adjudication can offer a fully reliable solution. The question is about choosing betweens. 141
54.imperfect alternatives.140s. 141
55.Historically, the first type of situations of the above category that entered fair tradings. 141
56.law was probably a generally stated prohibition of misleading advertising. The originals. 141
57.focus of attention was the competitor, who could be negatively affected by businesss. 141
58.being diverged. However, by laying down a general and all-embracing obligation tos. 141
59.abstain from deceptive information, the lawmaker - willingly or not - addressed as. 141
60.collective interest and thereby triggered all the intricacies of ‘big numbers’ decisions. 141
61.making. Decisive for the qualification of an advertising message as misleading weres. 141
62.the perceptions of the consuming public. How do consumers understand thes. 141
63.advertising? How many consumers are misled by it? What is the relevance of thes. 141
64.advertising information to the buyer? These are all questions that arise and whoses. 141
65.solutions depend on the representation of relevant interests in the decision-makings. 141
66.process.s. 141
67.Other examples of fair trading rules that concern collective and public interests ares. 141
68.prohibitions or restrictions of special offers, sales and sales promotions, prohibitions ofs. 141
69.marketing violating legal standards, or rules on information disclosure. Rules ons. 141
70.comparative advertising occupy a middle ground between public and private interests. 141
71.offences. Comparative advertising often identifies an individual competitor or a groups. 141
72.of competitors and as such affects well-identified individual interests. At the sames. 141
73.time comparative advertising is normally addressed to the general public and can ins. 141
74.certain instances be a highly effective information carrier. It can therefore not bes. 141
75.treated exclusively as a private interest matter. The interest of the consuming publics. 141
76.does not necessarily coincide with that of the advertiser and this conflict may requires. 141
77.issues of representation to be settled.s. 141
78.Admittedly the distinction between private interest and collective interest rules iss. 141
79.somewhat artificial. Protection of trademarks and other commercial signs froms. 141
80.confusion and misappropriation may primarily serve the interests of the right-holder,s. 141
81.but at the end it benefits collective consumer interests in that this protection guaranteess. 141
82.a reliable system of identification and market communication.141 Yet there is ans. 141
83.important distinction between these situations and the ones that are of primary interests. 141
84.to this study. In all cases where an individual interest can be clearly identified, thes. 141
85.question of bringing this interest before the appropriate decision-making processs. 141
86.(market, political process or courts) does not pose particular problems. One can bes. 141
87.73 confident that the negatively affected competitor will take care of identifying the problem, presenting the relevant information in a comprehensive manner and channelling it through the respective decision-making forum.142 Most often than not, the private conflict of interests would sufficiently reflect and elucidate all interests involved. Pure private interest offences are therefore not within the scope of the present study.143| 3.2 Ensuring fair trading through the market process Fair trading is about information and commercial communication. An analysis of the market process as an institution ensuring fair trading needs consequently to address the potential of the market to achieve an optimal quality and quantity of market information. By optimal I mean information that ensures the highest number of mutually advantageous transactions, reflecting the preferences of the individual market actors. Yet, if markets are narrowly understood through the lenses of classical economic theory, such analysis would be obsolete. If we follow the assumptions of transparency and perfect information inherent in the equilibrium competition model building the basis of modern price theory, concerns about fairness of commercial communications should be dimissed as a non-issue. Not surprisingly, many exponents of classical and neoclassical economic theory view advertising and marketing with suspicion, mainly as a source of artificial entry barriers. A more profound understanding about the role of information, uncertainty and trust in economic life requires other analytical tools, provided first with the advance of information economics. The analysis offered by information economists can easily be recast in terms of participation, i.e. in terms of the ability of the market to generate transaction opportunities. In fact one of the principle merits of information economics is to have highlighted information asymmetries and information distortions as one major source of transaction costs. Consequently the findings of information economists in many respects conform to those from an analysis based on a participation centred approach.s. 142
Information in the market and the market for information
1.There are three pretty straight-forward and simple starting points in the analysis of market information, (i) Information is unevenly distributed among market actors, (ii) Information is costly, (iii) Information reveals public-goods characteristics. Each of these propositions needs closer elaboration in order to understand its bearing on problems of fair trading.s. 142
2.74s. 148
3.3.2.1.1 Information asymmetrys. 148
4.That market information is unevenly distributed among market actors does not needs. 148
5.much substantiation. Buyers generally are in a much inferior position than sellers ins. 148
6.respect to both price and quality. Information asymmetry and uncertainty mays. 148
7.therefore be a better description of markets than the notion of transparency.144 There iss. 148
8.price dispersion in almost all markets. Prices are consequently not easy to ascertain.s. 148
9.Ascertaining quality is an even more complex process. Philip Nelson points at a trivials. 148
10.but fundamentally important distinction between product characteristics. Somes. 148
11.features of a product, much like price, can be readily established prior to or at the verys. 148
12.moment of purchase (the colour of a pair of shoes). Others can only be ascertaineds. 148
13.after the purchase (the taste of a bottle of beer).145 Nelson calls these two types ofs. 148
14.product characteristics ‘search’ (or inspection’) and "experience’ qualities,s. 148
15.respectively. This classification is further refined by Darby and Kami, who note thats. 148
16.there are product qualities which do not yield costless judgement even after purchase.s. 148
17.They refer to this category as "credence qualities". Credence qualities cannot bes. 148
18.evaluated in normal use but only through a highly qualified and costly expertise.146 Ans. 148
19.example that readily comes to mind is the quality, and indeed the necessity, of a cars. 148
20.repair service. To take another example from modern marketing - the allegeds. 148
21.environmental-friendliness of a product (high decomposability of a detergent ors. 148
22.recycling properties of paper) is a typical credence quality. It is obvious thats. 148
23.asymmetry and ensuing consumer uncertainty are more pervasive with respect tos. 148
24.credence product characteristics than in the case of price search product qualities.s. 148
25.Analysts note, however, that also price can be composed in various ways so as to makes. 148
26.consumer scrutiny more difficult.147s. 148
27.3.2.1.2 Information costs. 148
28.The second simple observation is that information is costly. Production, disseminations. 148
29.and assimilation of information all involve costs for producers and consumers. Unders. 148
30.conditions of price and quality uncertainty purchase decisions are not mades. 148
31.automatically, but are preceded by an intricate process of ascertaining quality ands. 148
32.price. This process, called by Stigler search, involves sometimes non-negligible costs.s. 148
33.The pattern of consumer search for ascertaining price as a rule differ significantly froms. 148
34.those for ascertaining quality. Price-search would mainly consist in canvassings. 148
35.different sellers and comparing their asking prices. The costs are chiefly associateds. 148
36.with transportation and time.148Ascertaining quality is a much more complex process.s. 148
37.Apart from canvassing more than one seller prior to purchase, consumers will bes. 148
38.reading advertising materials, consumer journals, consulting friends and relatives, etc.s. 148
39.Obviously, in view of the distinction between product qualities discussed above, fors. 148
40.75 some categories of goods ascertaining quality will be associated with prohibitive costs. This means that purchase of such goods will always be conducted in uncertainty. Information costs depend on two main variables: (i) buyers’ opportunity cost of time (i.e. the value of opportunities foregone to the consumer by his engaging in search) 149 and (ii) the time spent per unit good.150 It is important to note that consumers will be willing to engage in search only to the extent that the expected marginal cost of search does not exceed (outstrip) the expected marginal return (i.e. the gain from buying at a lower price or better quality). Both price search and quality search are consequently a function of the value of the product to consumer. In a perceptive analysis on information and consumer behaviour Nelson demonstrated the complex relation between product characteristics in terms of quality (search/experience goods) and relate to the value of the purchased good and to the frequency of purchase. Two other distinctions in the characteristics of goods provide further insights in the costs of consumer information and the structure of search: the value of the good (high-value and low-value goods) and the frequency of purchase (durables and non-durables). For low-value non-durables Nelson shows that is is cheaper for consumers to search through experimenting, i.e. by bying and trying the product. Conversly, for high-value durables consumers will be more inclined to engage in costly search. Alternative pre-purchase information is demanded most for durable experience goods.151 3.2.1.3 Information as public good Finally, information reveals the typical characteristics of a public good.152 As other public goods information is characterised by ‘non-rivalrous’ consumption. Not one, but many persons can typically make use of the information without its utility being diminished. 153 Information can also be described as a non-appropriable good. Those who have information can never loose it by transmitting it. There are few adequate mechanisms for assuring property rights in information. Information is indivisible and therefore difficult to measure and, respectively, to price. Inspection prior to purchase is impossible without revealing the information, which makes the transaction obsolete. In addition, it is problematic to exclude those who do not pay from the use of the good - so-called non-exclusivity.s. 153
Problem areas
1.All these characteristics account for the considerable complexity of the market for information, whereby the problems are partly different in respect to seller-provided information and in respect to information supplied independently from the product.s. 153
2.76s. 154
3.Two main problem areas can be identified: (i) there may be an undersupply ins. 154
4.information even in competitive markets; (ii) information problems create space fors. 154
5.opportunistic behaviour, i.e. for deception and misrepresentation.s. 154
6.3.2.2.1 Free-riding and undersupply of informations. 154
7.Given the demand for product-related information, one would expect that the frees. 154
8.market would readily provide such information. We can reasonably anticipate thats. 154
9.some market actors (other than producers themselves) will specialise in the productions. 154
10.and distribution of market information. Indeed, publications of consumer journals cans. 154
11.be seen as a response to this demand.154 However, there are serious impediments to ans. 154
12.efficient market of product-related information, separate from the product market. Thes. 154
13.public-good qualities of information account for substantial free-rider problems. Thes. 154
14.purchase, production and use of information by some consumers generate a markets. 154
15.perfecting external benefit to uninformed consumers. In the hope of costlessly usings. 154
16.the information purchased by others, many will not reveal their realistic preferencess. 154
17.and readiness to pay for the good. In order to cover expenses incurred in thes. 154
18.production of information, producers (of information) will charge those few who pays. 154
19.with inadequately high prices. Therefore, there might not be enough incentives fors. 154
20.third-party information providers.155 As a result undersupply of the good may bes. 154
21.observed. Seen in participation terms many efficiency increasing transactions withs. 154
22.information will not take place.156s. 154
23.The demand for product-related information and the problems observed with third-s. 154
24.party product information seem to enhance the importance of information provided bys. 154
25.interested sellers. There is a natural economy in the joint production of a commoditys. 154
26.and of information about that commodity. Sellers typically have a lot of informations. 154
27.about their product attributes which is costly for other parties to ascertain. Thiss. 154
28.information is acquired ‘casually’, as a by-product of their overall activity. Theys. 154
29.benefit from the knowledge in many different ways and have multiple incentives tos. 154
30.acquire information.157 This solution appears to be Pareto efficient.s. 154
31.However, the same public goods properties of information that inhibit markets fors. 154
32.thrid-party information account for externalities in seller-provided information as well.s. 154
33.An important factor, constraining an optimal information disclosure in a competitives. 154
34.market, is the risk of free-riding on a competitor’s information due to the public-goods. 154
35.properties of information discussed above. Sellers may not be interested to disseminates. 154
36.relevant product information, if the benefit resulting from this dissemination will bes. 154
37.shared with other competitors. Similarly, incentives for counteracting incorrect ands. 154
38.77 deceptive claims of competitors will be small if the benefits from such actions do a service to other competitors. On a different note, the fact that advertsing is a function of sellers’ marketing efforts, generally makes disclosure improbable if revealing the truth may negatively affect one’s own business. A typical case of information failure in a competitive market is when all the competitors share the same negative product characteristic. The advertising of cigarettes is a particularly telling example.158 Albeit cigarettes are a product with serious health effects, no producer has the incentive to reveal these negative characteristics to consumers. 3.2.2.2 Advertising and opportunistic behavior Asymmetric information distribution and excessive (or prohibitive) search costs have multiple implications for the behaviour of market actors and the efficiency of market transactions. More generally, they open space for opportunistic behaviour, i.e. for cheating and misrepresentation. Seller-provided information (typically in the form of advertising) aims at determining consumers’ purchasing behaviour.159 Sellers have incentives to misrepresent and the information they provide is contaminated by credibility problems?60 Opportunistic behaviour is a clear danger. Two patterns of behaviour have been highlighted as particularly serious sources of market distortions. They are usually summarised under the concepts ‘moral hazard’ and ‘adverse selection’. Moral hazard may be defined as opportunistic behaviour whereby a market actor may change behaviour if he can remain unnoticed by the opposite party. Thus, producers may use consumers’ ignorance about quality and shift to lower quality production, charging the same price. Similarly, in an insurance contract the insured party may switch to a more hazardous behaviour omitting the necessary precautions once the risk has been passed on to the insurer. With the term adverse selection information economists describe a situation in which market participants are uncertain about the quality of a product or service, and are not in a position to distinguish between good and bad quality despite their willingness to pay for this discriminating ability. Arguably, under these conditions market actors will orient their decisions after the visible quality. The effects of adverse selection in the setting of strong asymmetry of information have been vividly demonstrated through the so called "lemon market’ model designed by Akerlof.161 The example chosen is the market for used cars. Akerlof detects a paradox on this market. Owners of good-quality cars are less inclined to sell their cars since they cannot convincingly communicate quality information to interested buyers and can hardly hope of getting a satisfactory price. Thus poor-quality cars (‘lemons’) prevail on the market. For a ‘lemon’ market to emerge the following conditions have to exist: (i) Consumers must be unable to determine quality before purchase, i.e. it must be as. 155
39.78s. 168
40.question of experience or credence goods, (ii) Higher quality goods should cost more tos. 168
41.produce than lower quality. In other words, there should be a premium for producerss. 168
42.from switching to lower quality, so called opportunism premium, (iii) There must be nos. 168
43.credible way for a seller to communicate quality. Arguably, under these conditionss. 168
44.consumers will orient their purchasing decisions after price as a more easily observables. 168
45.characteristic. Better quality sellers will be driven out of the market. It can eventuallys. 168
46.result into a market break-down, in that better quality producers may be driven out of thes. 168
47.market.162 The described phenomenon may cause flagrant misallocation of resources. Ins. 168
48.a worst-case scenario the market may collapse. Economists speak of the risk fors. 168
49.functional inefficiency.163 Akerlof links this analysis with the observed differentials. 168
50.market conditions in developed and developing countries and calls this ‘the cost ofs. 168
51.dishonesty’.s. 168
52.3.2.2.3 Market institutions to cope with information and uncertaintys. 168
53.The market has produced a number of institutions to cope with or at least to mitigates. 168
54.problems of uncertainty and information. Attempts to minimize search costs ares. 168
55.behind some of the secrets of various forms of distribution - ex via specialised traders,s. 168
56.located markets, etc.164 The department store, which generates expertise ands. 168
57.knowledge on brands, is seen to be a response (among others) to exactly that necessitys. 168
58.of consumers to get hold of a more precise and objective information than the ones. 168
59.offered by producers themselves.s. 168
60.One way by which the specific setting of ‘lemon markets’ is avoided is the triggerings. 168
61.of "signal competition.1 5 ‘Signal competition’ means a transfer of competition froms. 168
62.the field of invisible quality characteristics to the field of indirect but visibles. 168
63.symptoms, that is to signs (signals) of quality. Building a trademark and investing ins. 168
64.goodwill and reputation are among the most common ways of signalling quality.166s. 168
65.But investment in a franchise or in a luxurious store may have a similar effect.s. 168
66.Providing warranties or trial periods and other contractual arrangements may bes. 168
67.viewed as alternative ways to give consumers a time to build experience with as. 168
68.product and to communicate quality.167 Arguably, even high prices can function as as. 168
69.signal for quality. A seller who charges a high price indicates that he values repeats. 168
70.sales highly and thus has an incentive to provide high quality product in order to retains. 168
71.his customers.s. 168
72.In Stigler's view goodwill can be defined as continued patronage by customers withouts. 168
73.continuous search (that is, no more than occasional verification).168 Goodwill ands. 168
74.reputation create certain monopolistic space for the individual supplier. The incentivess. 168
75.for sellers to maintain quality and the likelihood of establishing goodwill depend ons. 168
76.79 several variables. Particularly decisive appears to be consumers’ ability to keep track of brand-specific performance experience.169 It is also important that consumers purchase the product frequently, that true quality is relatively easy to judge after use of the product, that the future is not discounted too heavily and that consumers tend to stay in the market for a long time. An alternative way to promote reputation is to invest in collective reputation by subscribing under and promoting collective ethical codes. The increased reliability of a profession is a shared benefit for all members.170 Collective reputation thus provides substitute to the information about the conduct and reliability of an individual trader. Generally speaking, signals indicate that the seller has made a significant investment (economists speak of ‘sunk costs’) and has much to loose if customers are unhappy.1 1 The findings of information economics sketched out above suggest that the market provides information in many subtle ways. One of the market’s great advantages is that it generates a huge number of information signals in a spontaneous manner. Opportunistic behaviour and undersupply of information are certainly often occurring but there are a variety of mechanisms to curb such inefficiencies and to induce transactions. Nevertheless, there are several areas where fair adequate quantity and quality of information will not be ensured by the market, or will be ensured only imperfectly. In the area of price information, consumer ignorance creates certain incentives for traders for manipulation of prices and deliberate price dispersion. In the area of quality, non-disclosure of information and use of deceptive information can be rewarded in some situations. The persistence of such informational failures and the chances for their correction through the market appear to depend on several factors, among them the structure of the market and the product characteristics in point, being the most important. Both factors can be directly related to conditions for paricipation in the market. Market structure and product characteristics will determine the distribution of stakes on the part of sellers whereas the value of the good and the frequency of purchase determine the size and distribution of stakes among consumers. Market structure Under rigorous competition, producers will arguably have stimuli to reveal information that is relevant for consumer choice. From the positions of the neoliberal Chicago school of economic analysis, economists argue that the risk of opportunistic behaviour, i.e. engaging in deceptive practice, will ideally be neutralised by producers’ incentives to induce repeat purchases on consumers.172 Likewise, competition is supposed to give sufficient incentives for self-control, deception disclosure and prosecution among competitors.173 Monopolistic markets imply that the stakes on the one side of the transaction are highly concentrated. On the one hand price and quality variety will not exist and the costs for canvassing different sellers are zero. On the other hand the asymmetry as tos. 169
77.80s. 177
78.the quality of goods is great. There are no competing products and there are nos. 177
79.incentives for the seller to disclose and to inform consumers. Intuitively one mights. 177
80.think that monopolistic markets would make an excellent environment from the points. 177
81.of view of market transparency. In a fully monopolistic market consumers are faceds. 177
82.with products coming from one source only. This would supposedly make searchs. 177
83.obsolete and thus eliminate search costs. Despite this intuitive assumption, economistss. 177
84.generally argue that monopolistic markets have adverse effects on market informations. 177
85.in many respects. A monopolist has fewer incentives to provide information thans. 177
86.sellers under intensive competition do. Consumers are not in a position to disciplines. 177
87.the monopolist through shifting their preference to alternative products and there ares. 177
88.no competitors that would have the incentive to provide the missing bits ofs. 177
89.information or to counteract false claims.174s. 177
90.Another structural arrangement that is particularly problematic from informations. 177
91.perspective is the turbulent market. As turbulent we can describe markets withs. 177
92.instability of supply and demand conditions and constantly changing identity of buyerss. 177
93.and sellers. Analysing phenomena of price dispersion resulting from the imperfections. 177
94.of information about prices, Stigler mentions several factors that deepen the impact ofs. 177
95.this market distortion. Among these are: the instability of supply and demands. 177
96.conditions and the changing identity of buyers and sellers that increase ignorance.175s. 177
97.In principle, as Stigler notes, “there is a flow of new buyers and sellers in every markets. 177
98.and they are initially uninformed on prices and by their presence make the information ofs. 177
99.experienced buyers somewhat obsolete." 176 More flagrant example of turbulent marketss. 177
100.to be found in most economies are tourist markets known for an unusually highs. 177
101.mobility of buyers and occasionally of sellers as well.s. 177
102.When it comes to changing identity of sellers, one can generally distinguish betweens. 177
103.firms who plan for a continuous stay in business and so called ‘fly-by-night’ actors,s. 177
104.who strike once and then move to a different field of business. In established markets. 177
105.economies firms in most industries are closer to the former type. Therefore economics. 177
106.analysis usually doesn’t deal with the ‘fly-by-night’ type of firm taking it as atypical.177s. 177
107.The situation, however, changes drastically if one shifts the focus to developings. 177
108.countries and emerging markets. Clearly, transient participants in business are lesss. 177
109.likely to be disciplined through market institutions such as repeat purchases ands. 177
110.reputation. Warning of the grave consequences of asymmetric information abouts. 177
111.product quality, Akerlof underlines that dishonesty in business is a more seriouss. 177
112.problem and that quality variation is greater in underdeveloped countries than ins. 177
113.developed areas. The presence of people who are willing to offer inferior goods tendss. 177
114.to drive the market out of existence. It is this possibility that represents the major costs. 177
115.of dishonesty - because dishonest dealings tend to drive honest dealings out of thes. 177
116.81 market.178 The message is simple but powerful: fragile markets create an environment more likely to produce informational market failures. This insight has a particular bearing on the analysis of emerging post-communist markets, where dynamic change of actors occurs both on the demand and on the supply side. The role ofp roduct characteristics Apart from and irrespective of market structure, the potential of market forces to remedy informational failures, and to discipline deception in particular, would very much depend on the specific characteristics of the products in question. Here both product qualities are important but also price category and frequency of consumption. In the context of the already introduced classification of product qualities, it is clear that sellers would have little incentives to misrepresent search qualities facing the prospect of immediate detection. In the cases of experience goods, where consumers can determine quality only by purchasing and using the good, the situation is more nuanced. While in this group of goods advertisers may have an incentive to mislead, for low-priced often-purchased goods such opportunistic behaviour would presumably be curbed by sellers interest in repeat purchases. By contrast, consumers’ power over advertising is substantially weaker in the case of credence goods and expensive and rarely-purchased experience goods.179 Arguably, signals would in a similar manner work unsatisfactorily if consumers are not in a position to get any reliable post purchase information about the quality of the product, either by their own experience or from a third person, and where they buy the product only infrequently. When consumption is only occasional (it is guaranteed that each consumer will consume the product/service only once), the distinction between credence and experience goods is irrelevant, since ascertainment of quality through consumption will as a rule not lead to correction of future choices. Consumers do not have possibility to communicate their dissatisfaction through their purchases.180 The analysis of information economists can be easily recast in terms of the participation-centered approach advanced by Komesar. Both cases - of undersupply of information and of opportunistic behaviour - are in a position to negatively affect institutional behaviour in the market, i.e. transacting. Efficient transactions will not take place or alternatively transactions will be concluded which do not adequately reflect the preferences of consumers. The participation-centered approach suggests that persistence of such failures will depend on the cost conditions as well as on the distribution of stakes as determinants of institutional participation.181 Comparing advertising with political propaganda, Komesar speaks of advertising as ‘rent-seeking’ in the market context.182 In the typical case of marketing and advertisings. 178
117.82s. 184
118.we have a single actor, the seller, with high and concentrated stakes on the one sides. 184
119.and a mass of consumers, with low and dispersed stakes on the other side of thes. 184
120.interests. At the lowest stakes level, as Komesar puts it, “consumers do not haves. 184
121.sufficient interest to even recognize the problem or to be interested in attempting tos. 184
122.assimilate any information - false or otherwise. They can neither be led nor misled.”s. 184
123.According to Komesar this recognition failure is problematic, but does not lead tos. 184
124.economic rent-seeking and instead only leaves a potential need unrealised.s. 184
125.The really problematic cases that Komesar identifies are the mid-stakes consumers,s. 184
126.who are sufficiently interested to register information, but not sufficiently interested tos. 184
127.discern information.183 It is within this group that rent-seeking in the form ofs. 184
128.misleading or other manipulative advertising and marketing could be successful. Ats. 184
129.this level Komesar turns to the role of the issue being at the centre of advertising, i.e.s. 184
130.price and quality of a product. The more complex the issue, the greater the space fors. 184
131.economic rent-seeking from misleading information. Again the correspondence withs. 184
132.Nelson’s analysis on the role of product characteristics for defining the space fors. 184
133.misleading advertising is noteworthy.s. 184
134.Bringing this analysis a step further, it can be argued that the situation will be differents. 184
135.if the market in question is characterised by a sufficient portion of high-stakes. 184
136.consumers. Misleading information and manipulative product differentiation will ins. 184
137.these cases not be a serious issue, since these consumers would have sufficients. 184
138.incentives to get informed through alternative channels. The developed secondarys. 184
139.markets for information in such industry sectors as cars, computers and others. 184
140.expensive electronic equipment demonstrates that high stakes normally would prompts. 184
141.information-seeking. This hypothesis finds support in Nelson’s analysis on advertisings. 184
142.of high-value goods.184s. 184
143.Finally, one should make an important caveat for irrational consumer behavior.s. 184
144.Information economics proceeds in general from the basic behavioural assumptions ofs. 184
145.neoclassical economic theory (the ‘homo economicus’ model). In reality, however,s. 184
146.consumers are often not in a position to adequately process and evaluate information.s. 184
147.There are clear limitations on the amount of information consumers are willing tos. 184
148.absorb and able to process. Consumers are often poor negotiators and yield to pressures. 184
149.and other techniques of persuasion and marketing.s. 184
The potential role of alternative institutional processes
1.Summing up, information economics provides a more sophisticated analysis ofs. 184
2.markets than neoclassical theory, identifying market failure as a result of informations. 184
3.imperfections as well as market institutions that have emerged to compensate for theses. 184
4.imperfections. At least at a first blush it appears that these findings open the gate fors. 184
5.intervention by alternative non-market institutional processes. The political processs. 184
6.83 could potentially serve as an instrument for reducing the cost of information through creating non-market institutions for protection of trust and goodwill and through appropriate legislation for policing deception. The judicial and the administrative process can likewise be entrusted with shaping and enforcing fairness standards. Diagnosing a disease, however, is not the same as prescribing the right medicine. For any credible normative conclusions to be drawn from the analysis above, one has to leave the Nirvana approach characteristic of much economic analysis and to embark on a true comparative system analysis. The conclusion about the imperfection of markets as a decision-making process on issues of market information requires analysis of the institutional characteristics of alternative decision-making processes and setting them in relation with the social policy issue at point. What is needed is a more careful evaluation of the relative abilities of these alternative processes to ensure a more efficient (less imperfect), participation and representation of all interests involved. 3.3 Fair trading in the political process The economic analysis above provides a new pespective on fair trading law. Fair trading law is conceptualised as a complex of legal institutions facilitating market communication and protecting trust and goodwill in the marketplace. By discouraging opportunistic behaviour (i.e. minimising the premium for opportunism) fair trading laws seek to enhance market transparency and efficiency. Moreover, such institutions can potentially promote trust, which in a world of increasing information asymmetries is a cost-effective substitute to knowledge.185 Yet, this type of economic analysis implicitely assumes that the alternative processes (political, judicial and/or administrative) that will be entrusted with shaping these standards and will step in place (or by the side) of the market mechanism would work in a tension-free manner. The analysis assumes that these processes will be in a position to provide the desired efficient solution. It does not deal with the working of these alternative processes and is thus one-sided. In contrast, the comparative system-approach advanced by Komesar requires to look critically at the political, administrative and the judicial process called to substitute or complement the market and to comparatively analyse their institutional strengths and weaknesses. Turning to the legislative (political) process, consumers and producers change their role into voters and lobbyists and transactions are substituted by different forms of participation in the political process, among them lobbying and voting being the most important. Decisions are no longer directed at specific products (transactions), but concern more abstract regulative issues, typically involving aggregation of different interests. To analyse this process, the participation-centered approach suggests several components. The first two concern the regulative issue (its complexity and importance) and the interest structure behind it. A third component is the examination of the characteristics of the political process in terms of possibilities and impediments to participation. All three factors are at best analyzed in the contexts. 185
7.84s. 186
8.of a concrete legislative measure in a specific legal system. Nevertheless somes. 186
9.generalizations are also possible.s. 186
Interests involved: size and distribution of stakes
1.The area of fair trading law as defined above involves a great variety of regulatives. 186
2.issues having different degree of complexity and involving different interests. Twos. 186
3.groups of actors are, however, inevitably affected by legislative decision-making,s. 186
4.namely competitors and consumers. With a risk of simplification I will attempt as. 186
5.categorisation of the regulative issues in terms of size and distribution of stakess. 186
6.between these major institutional actors. Looking at the interests of competitors, wes. 186
7.can identify, broadly speaking, four categories of situations. The first category can bes. 186
8.dubbed ‘quasi-propety’ issues. Rules on passing off, misappropriation, trade secretss. 186
9.and libel have justifications exhibiting kinship with those valid for protection ofs. 186
10.intellectual property rights. Fair trading law is involed to serve as an extension ofs. 186
11.trademark and intellectual property rights or complements personal rights (e.g. thes. 186
12.right to personal integrity).16s. 186
13.The second category of issues can be termed ‘horizontal’, since they, at least prior tos. 186
14.regulation, affect in a similar manner all businesses, irrespective of sector belonging.s. 186
15.Here fall rules such as a general prohibition of deceptive advertising, broads. 186
16.requirements of fair competition and a general duty of information disclosure. The sizes. 186
17.of stakes is in the low and medium range, but ex ante regulation the stakes are evenlys. 186
18.distributed across industries. It is certainly important for traders to influence theses. 186
19.general legislative standards of commercial communication. But in ex ante regulations. 186
20.each competitor can picture himself or herself both on the side of the accused ins. 186
21.misleading advertising, or on the side of the negatively affected by such advertising.s. 186
22.Moreover, since the form of regulation will often consist in laying down quite open-s. 186
23.ended standards of fairness and correctness of marketing and advertising, this woulds. 186
24.not be expected to be an issue of controversy. The refinement of this standard wills. 186
25.typically take place in other institutional arenas.s. 186
26.In the third category we can classify issues concerning a specific industry sector whichs. 186
27.can therefore be defined as ‘vertical’. One example is restrictions on tobaccos. 186
28.advertising, on alcohol or drugs advertising. The stakes of the affected traders ares. 186
29.definitely high and concentrated. The industry is well-identified and, depending on thes. 186
30.specific form of intervention (general standards, restrictions or plain prohibition)s. 186
31.regulation may bring about serious losses for the respective sector.s. 186
32.A fourth category of regulative issues, while formulated in a general manner, tends tos. 186
33.affect harder some industries at the expense of others, and can therefore be labeled ass. 186
34.‘preferential’ (or hidden sectoral). An example here could be restrictions on certains. 186
35.forms of marketing that are more intensively employed by some industries or industrys. 186
36.sectors and thus promising to provide competitive advantages to the firms nots. 186
37.employing the regulated marketing strategies. A classical example is the controversys. 186
38.between wholesale traders and produces on the one side vs. retail traders, on the other,s. 186
39.in respect to restrictions on rebates and special offers.s. 186
40.85 If we turn to the interests of consumers, as a general observation, one can say that most instances of regulation in the sphere of fair trading involve broad and diffuse consumer interests. Fair trading is about information. Given the public-good properties of information, each general or specific legislative decision concerning marketing has an effect on the broad consuming public. A decision to permit or to prohibit certain marketing measure cannot be confined to one single transaction but works inevitably erga omnes. Characteristic of diffuse consumer interests is that they concern nearly all subjects of a given jurisdiction and that every consumer has different value preferences and hierarchies.187 The stakes are low and distribution is uniform. Setting fair trading standards in specific sectors can occasionally change the size and distribution of stakes. For instance regulating fair trading in real-estate or car markets may raise the stakes of affected consumers and increase the concentration of stakes. Yet, even then consumers will be many and difficult to identify. The interest structure ex ante regulation for the most part is characterized by low stakes and dispersed interests on the part of consumers. In his analysis of the political process Komesar chiefly proceeds from a bipolar interest structure. In reality, however, the interests involved in a certain regulative issue may reflect more complex arrangements.188 Indeed, certain issues of fair trading exhibit a triangular structure, where we have opposing industries lobbying for different regulative strategies and a broad consumer interest that may (or may not) coincide with one of the alternatives supported by the industries. In the area of fair trading typical examples of such interest structures are the different positions taken by small and medium-sized enterprises and by big industry, or by retail industry vs. wholesale business on issues of aggressive marketing strategies such as combined offers, rebates, price comparisons, etc. Behind these prima facie neutral and horizontal regulative issues structural interests of divergent nature may transpire. If we apply the categories of comparative institutional analysis, the issues can be divided into four different categories depending on the size and distribution of the stakes involved. In the first catregory we find issues with uniform high distribution of stakes. Trade secrets, confusing imitations, comparative and disparaging advertising are situations involving high stake business interests on both sides. In a second category we have issues with uniform low stake distribution. Arguably, misleading advertising at least prior to legislative regulation is an issue involving many potential wrongdoers and many potential victims. The stakes are certainly higher on the side of competitors, than on the side of consumers, but are relatively evenly distributed. Thirdly, there are regulative measures that target a specific industry group restricting substantially the choice of marketing instruments, while bringing alleged benefits for a large and dispersed group of consumers. The issues in this category can be calleds. 187
41.86s. 188
42.sectoral. This is an example of skewed distribution of stakes. Prohibitions, or severes. 188
43.restrictions on tobacco, children or alcohol advertising are examples of such stakes. 188
44.distribution. Finally, there are situations, where on the surface the regulative measures. 188
45.affects uniform distribution of low (or medium) stakes. Under the disguise ofs. 188
46.neutrality the measures may, however, accord greater benefits to certain interests. 188
47.groups at the expense of broad consumer interests and consequently present a situations. 188
48.of skewed distribution. Regulations on rebates and special offers are examples ins. 188
49.point. This tentative categorisations of regulative issues and size and distribution ofs. 188
50.stakes is presented in the table below.s. 188
DistributionUniform HighSkewedSkewedUniform Low/
Mulitple InterestsMid-range
Size and high high high/medium-range low/mid-range
distribution concentratedconcentratedconcentratednot
of stakesv vvconcentrated
1.high low dispersedhigh/medium range vs. 188
2.concentratedconcentratedlow disperseds. 188
3.vs. 188
4.low disperseds. 188
Regulative QuasipropertySectoralPreferentialHorizontal
issue
1.-confusing Prohibition of:Abstract restrictions on -general clauses. 188
2.imitation;-tobaccocertain marketing forms: on fair tradings. 188
3.-disparagement;-alcohol- price comparisons -misleadings. 188
4.-trade secrets;-children - rebates;advertisings. 188
5.-corruption of advertising- promotional offerss. 188
6.employerss. 188
7.Lastly, it should be noted that the particular form of intervention also affects the stakess. 188
8.involved. Depending on the remedies and sanctions envisaged for specific conduct thes. 188
9.stakes may be raised or diminished. Participation in the political process wills. 188
10.predictably be much more intensive on the part of the affected industry in case ans. 188
11.outright prohibition on the marketing of specific product than if general standardss. 188
12.leaving broad margin for interpretation are on the legislative agenda. The threat ofs. 188
13.injunction on a particular advertising message will assumably not provoke strongs. 188
14.reactions, given the broad variety of communication means at the disposal of everys. 188
15.trader.s. 188
The costs of information and participation
1.Participation in the legislative process on the part of affected institutional actors wills. 188
2.depend not only on the size and distribution of stakes but also on the cost ofs. 188
3.information and organisation connected with participation. Information costs depends. 188
4.on the complexity of the regulative issue and the costs associated with acquiring thes. 188
5.87 necessary understanding. A simple and emotionally charged issue may have a strong potential to provoke participation even on the part of broad and otherwise dormant majority.189 Conversly, complex law and public policy questions requiring expertise may pass unnoticed. Rules on deceptive and unfair advertising are generally likely to provoke popular support without triggering strong reaction among the general public. Issues of sector regulation may be more complex to approach, but could incidentally attract public attention if they relate to health and safety or the environment (as is the case with tobacco advertising for instance). Finally, issues of preferential regulation tend to be muddled and difficult to penetrate. The second component in the analysis of the costs of participation in the political process relates to the costs of organisation. In the political science and economics literature diffuse interests are given as a typical example of rational disinterest in organisation. The difference in value preferences and hierarchies makes it impossible to integrate consumer interests in collective bargaining. Moreover, the pulic good qualities of consumer information gives rise to severe free riding problems, making it difficult for consumers to organize into membership-based organisations. Non members also benefit from the initiatives of the activists organisations without paying any costs for it.190 Therefore private organisations have few incentives to improve the overall consumption standards. One should not forget, however, that lobbying is not the only way by which consumers partcipate in the political process. Consumers are also voters and as such they may exercise considerable influence at the polls. This ability will, however again depends on the complexity of the issue and its potential to provoke media attention.191 In contrast to consumers, industry is as a rule well organised into membership associations. Political influence (lobbying) is just one among the broad variety variety of goals these industry organisations are set up to pursue. The plurality of objectives usually makes membership attractive, ensuring continuity and financial stability. It endows these organisations with advantages of synergy, knowledge and economies of scale. Likewise, the capacity of such organisations to acquire information and expertise about specific regulative issues is high. Finally, the costs of participation largely depend on the characteristics of the political process in terms of size, complexity and openness.192 Here generalizations are of little use. One can sweepingly say that the political process in small jurisdictions may reveal a higher degree of transparency and accessibility than that in a big jurisdiction. Conversely, it has been claimed that complex political structures such as federal structures (and for that matter the Community political process) tend to open more room for influence of concentrated and well-organized groups.193 Such groups cans. 193
6.88s. 194
7.invest in gaining knowledge about complex decision-making processes and thus finds. 194
8.effective ways to influence the political agenda. Interest groups, which can muster thes. 194
9.resources to study these complex decision-making processes, can expect to bes. 194
10.successful in their lobbying activity. Last but not least, constitutional traditions may bes. 194
11.based on an open or more closed nature of the legislative and the political process (bys. 194
12.for instance different regulation of access to information), which encourages ors. 194
13.discourages participation. This would have immediate implications for the chances ofs. 194
14.diffuse groups to participate in the political process and have their concerns addressed.s. 194
15.In a negative sense, small and transparent jurisdictions may be more susceptible tos. 194
16.majoritarian bias, whereas federal jurisdictions create more levels at which strongs. 194
17.interest groups can find a sympathetic ear to their demands.s. 194
18.3.3.2.1 Risk for minoritarian or majoritarian biass. 194
19.The interest structure for most of the regulative issues that enter the sphere of fairs. 194
20.trading promises a rather balanced consideration of the issues in the political process,s. 194
21.although with a substantial tilt towards the interests of business and less visible ands. 194
22.recognizable attention to the interests of consumers. One should not, however, bes. 194
23.hasty to exclude any risk for bias in the political process in a minoritarian or in as. 194
24.majoritarian direction. For industry the situation may change with shift towards greaters. 194
25.specification of the regulative issue in terms of substance or in terms of industrys. 194
26.sector. In the latter instances industry is likely to mobilize and organize for betters. 194
27.representation in the political debate. One such shift in the area of marketing ands. 194
28.advertising is witnessed in attempts to regulate the marketing of certain products, likes. 194
29.tobacco or alcohol. Such attempts reveal different distribution of stakes with the stakess. 194
30.of the regulated industry being much higher and concentrated than those of the broads. 194
31.interests in the name of which regulation is undertaken. Another reshuffling ofs. 194
32.interests could possibly take place if certain marketing methods were more narrowlys. 194
33.associated with certain industries. For instance, attempts at regulation of directs. 194
34.marketing face a more concentrated interest structure on the business side than thats. 194
35.created through generally applicable prohibitions of deceptive advertising.s. 194
36.Likewise, interests may awaken and mobilize if restrictions on specific forms ofs. 194
37.marketing are sought that would create benefits of trade for identifiable industrys. 194
38.groups. Limitations on aggressive price reduction campaigns, sales promotions ands. 194
39.sales under production costs are often driven by organizations representing mediums. 194
40.and small-size enterprises, which perceive the new marketing strategies as a threat tos. 194
41.the competitive status quo and associate possible legislative intervention with somes. 194
42.benefits from trade.s. 194
43.In all of the interest constellations discussed above a risk of minoritarian bias in thes. 194
44.political process is at hand. It may be expected that the industries threatened bys. 194
45.regulation will be sufficiently motivated to organize and lobby in order to exerts. 194
46.influence on the political process either by completely blocking the intendeds. 194
47.regulation or by trying to soften the instruments and effects of regulation. Likewise, as. 194
48.particular industry may feel that regulation in a certain direction could bring benefitss. 194
49.of trade, and would actively push the issue through the legislative process. Provideds. 194
50.that the losers from the novel regulation are primarily to be found in the broads. 194
51.consumer community, resistance is unlikely.s. 194
52.89 Whereas interests on the part of industry may take different shape depending on the regulative issue involved, it appears at least prima facie that no such variations are likely to occur on the consumer side. Ex ante regulation consumers are typically a big and anonymous mass with low and highly dispersed stakes. They have difficulty to even recognize the regulative issue as one affecting their interest. The debate is likely to be dominated by industry. This is, however, not the full story. One important caveat applies. As Komesar reminds us, there are situations where a dormant majority can be successfully mobilized to participate and influence the political debate. Crucial is the emergence of a catalytic sub-group that would represent higher stakes in comparison to the rest of the group and that would feel motivated to move the issue to the political arena on behalf of the whole group. We can imagine here action by an interest group of high-stake investors in shares (consumers of financial services) lobbying for instance on the issues of more transparent financial markets and better control of insider trading. Even if the prevailing number of shareholders consisted of small-stake actors, for whom it would not pay to even recognize the issue (rational disinterest), this group of high-stake actors would still continue to have a perceptible interest of improved regulation that would justify the costs invested in lobbying and organization. Alternatively, as Wilson pointed out, it may suffice that a skillful entrepreneur emerges who is able to mobilize the majority or at least to convincingly threaten to do so.194 In such situations we may face a genuine attempt to represent consumers’ best interests. One example that has acquired emblematic significance in the consumer protection field is the activist work of the American consumer advocate Ralph Nader in the 1960s and 1970s.195 In a somewhat different vein, it can happen that a group outside the circle of consumers defines itself as acting in the interest of consumers of its own accord (self-appointed consumer advocates). A benevolent scenario finds an internal motivation for action that diverges from, but does not run contrary to, the ‘genuine’ interest of consumers. A political group or actor may simply find it attractive to stand out as pro-consumer in the general political debate. Pushing consumer interests in fair trading law may be bringing voting points or may move the image of an organizations in a desired direction. A malevolent scenario involves misappropriation and misrepresentation of interests, culminating in regulative results running contrary to the genuine interest of consumers. The usual example is industry organizations lobbying for restrictive tariffs or quality standards in the name of consumers but pursuing anti-competitive (and hence anti consumer) effects. In the case of fair trading industry representatives may on the surface support restrictions on advertising and marketing in the name of consumers while pursuing competitive advantage over import products that are less adapted to the existing regulative framework. Also on the consumer side, the characteristics of the policy issue involved in terms of benefits from participation and costs of gathering knowledge and understanding, matter. If we consider the stakes, the more palpable the interests affected, the greater the chance of even diffuse interests being activated. In this respect fair trading does nots. 195
53.90s. 196
54.promise a constant and intensive attention on the part of the public. The stakes are as as. 196
55.rule very low.s. 196
56.The costs for the majority of becoming informed (or at least becoming sensitized) is ans. 196
57.important variable. This potential is more readily available where the regulative issues. 196
58.is less complex and easier to mobilize under the impression of a powerful metaphorics. 196
59.language. Fair trading is not particularly conducive for such situations to emerge.s. 196
60.Although the interests of consumers are likely to be substantial in aggregate terms,s. 196
61.violations of fair trading rules unlike other consumer-related scandals (like the Mads. 196
62.Cow disease and the Thyroid accidents) rarely make newspaper headlines. At any rate,s. 196
63.Komesar’s analysis sharpens our attention for situations where the particulars. 196
64.combination between regulative issue and interest arrangement may result in as. 196
65.majoritarian orientation or majoritarian bias of the political debate. This may bes. 196
66.facilitated by the relatively moderate stakes industry has in the regulation of fairs. 196
67.trading.s. 196
68.33.2.2 Protectionism and paternalisms. 196
69.Seen from a slightly different angle, some of the instances of majoritarian ands. 196
70.minoritarian bias may be related to two familiar although debatable categories ofs. 196
71.policy-making, popularly known as protectionism and paternalism. With the terms. 196
72.protectionism one usually dubs political decision-making where, under the disguise ofs. 196
73.public interest objectives, regulation is introduced that is in fact driven by attempts tos. 196
74.favor a particular domestic industry.196 It may be a question of conferring benefits tos. 196
75.one domestic industry at the expense of another (sector protectionism), or mores. 196
76.typically, at the expense of foreign competitors. In the latter case domestic industrys. 196
77.may even support an otherwise burdensome regulation, knowing that it is betters. 196
78.adapted to meet the requirements than is the import industry. Regulation may thus bes. 196
79.relied upon to impede imports and assure windfall profits to the better-adapteds. 196
80.domestic industry. Protectionism is probably one of the most widespread and tenaciouss. 196
81.forms of minoritarian biases in the legislative process. According to liberal economistss. 196
82.the costs of protectionism are invariably borne by the consuming public.s. 196
83.Fair trading is prima facie not an area where protectionist policy-making has a naturals. 196
84.place. General standards against unfair and deceptive practices appear neutral ands. 196
85.meant to be equally applicable irrespective of industry sector. Yet as we noted aboves. 196
86.there are forms of regulation that under a neutral surface can more negatively affects. 196
87.certain industry sectors or imports, thus securing gains of trade to less competitives. 196
88.industry sectors or to domestic industry and trade in relation to imports. Such are thes. 196
89.examples of some regulations on direct marketing, on aggressive promotionals. 196
90.techniques, rebates and special offers, etc. The area is thus not fully immune againsts. 196
91.the allure of protectionism.s. 196
92.Paternalism can be placed on the opposite side of the scale between minoritarian ands. 196
93.majoritarian influences. There are instances of regulation, where the majoritys. 196
94.substitutes the preferences of certain group of individuals with its own preferences, thes. 196
95.main argument being that the individuals are not in a position to independently decides. 196
96.91 in their best interest (children, drug-, tobacco- and alcohol- abusers, persons addicted to games of chance, etc.). Paternalistic interventions imply that individual choices are overridden.197 Not all paternalist motivated regulation has a minority group as a target. In their classical article on property rights and liability rules, Calabresi and Melamed address the problem of paternalism when they discuss a third category of rules for protecting and regulating entitlements, apart from property rights and liability rules, namely inalienablity.198 Inalienable entitlements often take the form of prohibitions of transacting with certain rights and entitlements that cannot be waived by individual agreement. Calabresi and Melamed suggest that there may be good efficiency arguments for such prohibitions. Among the justifications for inalienability, the authors highlight a specific category of external effects that are of non-pecuniary nature. Thus, the preference exhibited by some for pornographic literature or for slavery may cause disquiet and moral concern with another social group. This category of justifications is called moralisms. A major source of transaction costs in this case is, apart from high numbers, the fact that this category of external costs “do not lend themselves to collective measurement which is acceptably objective and nonarbitrary.”199 In the view of Calabresi and Melamed prohibitions on grounds of moralism can be successfully analyzed in efficiency terms. It may be more cost efficient to prohibit transactions with an entitlement, then to regulate entitlements through property or liability rules. Another category of justifications for inalienability is paternalism. The authors distinguish between self-paternalism and true paternalism. Under self-paternalism the authors classify instances of “individuals passing a bill of rights so that they will be prevented from yielding to momentary temptations which they deem harmful to themselves.”200 According to Calabresi and Melamed this type of limitation cannot really be called paternalism. It is moreover a fully Pareto- efficient solution, since here the individual decides for himself and no one else knows better what is best for him. Self-paternalism entails giving up some freedom of choice in the short run, but this is in order to secure long-term freedom of choice.202 Marketing and advertising do not directly affect the exchange of goods. As indicated in the analysis of market information, they are a function of the market for goods and services. Nevertheless, regulations and limitations on marketing and advertising may well be undertaken with the intention to limit the exchange and the consumption of certain goods and services. Restrictions on tobacco advertising, on alcohol and drugs advertising are examples that readily come to mind. Although these rules are not equal to prohibitions of smoking or drinking they are intended to reduce consumption.s. 197
97.92s. 203
98.Alternatively we can say that these rules affect the entitlement to information about thes. 203
99.products in point and can arguably be classified as self-paternalism. Naturally, ins. 203
100.making collective choices, not all actors agree on these limitations. What is perceiveds. 203
101.as a necessary self-limitation by some could well be considered as an extremes. 203
102.limitation of freedom of choice by others. Self-paternalism in a (democratic) politicals. 203
103.process is therefore always a result of majoritarian decisions and may well be a case ofs. 203
104.majoritarian bias.s. 203
105.Calabresi and Melamed reserve the term ‘true paternalism’ for prohibitions where thes. 203
106.majority decides for a certain minority group what is in the latter’s best interest unders. 203
107.the presumption that it cannot decide for itself. The classical example is of limitationss. 203
108.on the rights of children to perform certain transactions. In the area of advertising ands. 203
109.marketing, restrictions on targeting children with commercials may have trues. 203
110.paternalist tilt. Calabresi and Melamed see also this category of prohibitions ass. 203
111.conforming to efficiency considerations. True paternalism can in their view not bes. 203
112.measured in Pareto-efficient terms, since the reason for the prohibition (inalienability)s. 203
113.is that the person would be better off if prohibited from transacting.s. 203
114.Calabresi and Melamed use the terms ‘moralisms’, ‘self-paternalism’ and trues. 203
115.paternalism for genuinely intended interventions. They warn, however, that moralists. 203
116.and paternalist motives could be used to disguise political agendas and fors. 203
117.redistributional goals. Alternatively, genuine moralist and paternalist concerns coulds. 203
118.bring about unwanted distributional results. Thus, prohibiting liability waivers ins. 203
119.product sales contracts would not only benefit the injured. Since producers tend tos. 203
120.transfer the costs of regulation into product prices, such prohibition would arguably bes. 203
121.to the disadvantage of make poorer all those consumers who were not injured and paids. 203
122.a higher price. In the words of Calabresi and Melamed:s. 203
123.Summing up a cursory analysis of the politics of fair trading demonstrates that thes. 203
124.political process and in particular the legislative process is not saved from the risks ofs. 203
125.mal-representation. Specific exemplifications of this abstract analysis will be provideds. 203
126.in the country analyses below.s. 203
127.3.4 Fair trading through the judicial or the administrative processs. 203
128.As indicated above, due to the changing standards and forms of unfairness, thes. 203
129.legislative process only rarely defines the precise standards of fair trading. More oftens. 203
130.the statutory provisions take the form of broad general clauses, the implementation ands. 203
131.shaping of the standards being left to alternative institutions such as the courts and/ors. 203
132.administrative agencies. Thus, even post legislative intervention, substantial room iss. 203
133.left to market actors to continue to influence the the standards of fair trade. With thes. 203
134.exception of the common law system in England, all European countries have suchs. 203
135.general clauses on fair trading (fair competition, fair commercial practices, bonoss. 203
136.mores, etc.). By keeping the standard broad and open, the political process recognizess. 203