Reading list: anti-surcharge rules and behavioral economics

I found this quite interesting, though I am much less skeptical
of behavioral economics than the authors. 
Most significantly, I am very sympathetic to the Occam’s Razor argument
that the no-surcharge rule serves obvious consumer protection functions across
a range of plausible circumstances, and I’m intrigued by the authors’ claim
that countries that allow surcharges are plagued with complaints about
excessive charges and insufficient disclosure.
Summary:
During the past decade,
academics—predominantly scholars of behavioral law and economics—have
increasingly turned to the claimed insights of behavioral economics in order to
craft novel policy proposals in many fields, most significantly consumer credit
regulation. Over the same period, these ideas have also gained traction with
policymakers, resulting in a variety of legislative efforts, such as the
creation of the Consumer Financial Protection Bureau. Most recently, the efforts
of behavioral law and economics scholars have been directed toward challenging
a number of state laws that regulate retailers’ use of surcharge fees for
consumer credit card payments. In part as a result of these efforts, the issue has
come before multiple courts, with varying outcomes.
In 2016 the issue reached the
Supreme Court, which granted certiorari in Expressions Hair Design v. New York
for the October 2016 term. The case, which centers on a decades-old New York
state law that prohibits merchants from imposing surcharge fees for credit card
purchases, represents the first major effort to ground constitutional law
(here, First Amendment law) in the claims of behavioral economics.
In this article we examine the
merits of that effort. Claims about the real-world application of behavioral
economic theories should not be uncritically accepted—especially when advanced
to challenge a state’s commercial regulation on constitutional grounds. And
courts should be especially careful before relying on such claims where the
available evidence fails to support them, where the underlying theories are so
poorly developed that they have actually been employed elsewhere to support
precisely opposite arguments, and where alternative theories grounded in more
traditional economic reasoning are consistent with both the history of the challenged
laws and the evidence of actual consumer behavior.
The Petitioners in the case (five
New York businesses) and their amici (scholars of both behavioral law and economics
and First Amendment law) argue that New York’s ban on surcharge fees but not
discounts for cash payments violates the free speech clause of the First
Amendment. The argument relies on a claim derived from behavioral economics:
namely, that a surcharge and a discount are mathematically equivalent, but
that, because of behavioral biases, a price adjustment framed as a surcharge is
more effective than one framed as a discount in inducing customers to pay with
cash in lieu of credit. Because, Petitioners and amici claim, the only
difference between the two is how they are labeled, the prohibition on
surcharging is an impermissible restriction on commercial speech (and not a
permissible regulation of conduct).
Assessing the merits of the
underlying economic arguments (but not the ultimate First Amendment claim), we
conclude that, in this case, neither the behavioral economic theory, nor the
evidence adduced to support it, justifies the Petitioners’ claims. The indeterminacy
of the behavioral economics underlying the claims makes for a behavioral law
and economics “just-so story”—an unsupported hypothesis about the relative
effect of surcharges and discounts on consumer behavior adduced to achieve a
desired legal result, but that happens to lack any empirical support. And not
only does the evidence not support the contention that consumer welfare is
increased by permitting card surcharge fees, it strongly suggests that, in fact,
consumer welfare would be harmed by such fees, as they expose consumers to potential
opportunistic holdup and rent extraction.
As far as we know, this is the
first time the Supreme Court has been expressly asked to consider arguments
rooted in behavioral law and economics in reaching its decision. It should
decline the offer.

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