Consumer Sales Law from an Economic Perspective

Introduction: In the European internal market consumers have a wide choice of products that become increasingly available through cross-border shopping. Sometimes sellers frustrate consumers‟ contractual expectations by delivering goods that are not of satisfactory quality. To guarantee a minimum level of consumer protection, EC Directive 1999/44 requires that goods must be in conformity with the contract of sale.1 This rule applies regardless of whether the seller behaved negligently. In cases of non conformity consumers have a choice of different remedies for breach of contract by the seller, such as repair or replacement or price reduction. The Directive has been presented as a significant step towards creating an internal consumer market, which would be impeded by fragmented and heterogeneous consumer protection rules. It may be followed in the future by further harmonization initiatives in the field of consumer sales law. From an economic perspective, two sets of questions arise. First, it may be asked whether legal intervention is necessary to guarantee quality in markets for consumer goods. The standard economic answer to this question is that legal rules may cure market failures, in particular problems of asymmetric information. However, any legal intervention must be justified by a benefit-cost analysis to enhance economic efficiency and avoid counterproductive effects. Consumer protection should be increased only up to the point where its marginal cost equals its marginal benefit. Moreover, market failures should not be replaced by government failures, which lead to outcomes that are worse than those of imperfect markets. Second, Law and Economics scholars have critically analyzed the question relating to the best level of government for designing regulatory responses to market failures. Should rules of consumer protection be enacted at the European level or should regulatory action be taken by the Member States? The economic analysis of federalism and regulatory competition provides several useful insights that are also relevant for discussing the desirability of harmonization of consumer sales law to further market integration.