The European Commission released a call for evidence regarding the proposed Digital Fairness Act. The Digital Fairness Act (DFA) is a proposed new EU consumer law designed to modernize online consumer protection against manipulative digital practices. The proposal aims to create a unified set of rules to address issues like manipulative design (dark patterns), harmful influencer marketing, subscription traps, and misleading pricing practices, ensuring online fairness is comparable to offline.

In response to the European Commission’s call for evidence, Managing Director Andrew Stivers and Directors Dominik Hübler and Mike LeGower, and Research Analyst Bruno Goes published the following comments, addressing the economics of drip pricing and subscriptions:

We welcome the opportunity to provide feedback to this consultation. Consumer protection and fairness can be straightforward when confronted with clear fraud, as when companies promise but fail to deliver valuable product attributes. Product- and marketing-design issues as raised by the DFA can be more nuanced in terms of their net effect on consumer welfare and raise a host of challenging economic questions that need to be addressed at the EU and national levels when considering whether to ban or regulate certain practices. 

Like more traditional consumer protection deception cases in which the claims and language used have to be evaluated in context to best understand how consumers respond and are affected, a firm’s design choices can be a function of legitimately conflicting consumer and business needs. This means that economic analysis of those needs and the overall effect on consumers can help firms and law enforcement recognize harmful practices. 

This comment provides two examples of such economic analysis in the context of so-called junk fees/drip pricing and for subscription cancelation practices based on the authors’ experience as regulators and advisors in similar cases in the US and Europe. Incorporating more economic nuance into the impact assessment will help improve the Digital Fairness Act. 

NB: The views in this issue are those of the authors and not necessarily those of others at NERA.