Consumers and sellers interact within markets; they engage in exchange. Sellers offer goods that consumers will buy. Economic theory illustrates how these markets work. In perfectly working markets no legal interventions are necessary. They are able to cure themselves and an intervention in this situation can only lead to a reduction of economic efficiency. This situation is called in economic terms a ‘first best solution’. There is no need for the government to intervene for instance through laws in form of taxes, subsidies, price ceilings. Laissez-faire policies enable the existence of a ‘free market’. Goods are offered and bought at market prices. It describes an ideal situation that does not exist in reality. The real world is full of market distortions and imperfections that make legal intervention in the form of consumer protection laws necessary. When legal interventions are considered it is referred to as second or third best solutions.

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L.A. Franzoni (Luigi) , W.H. van Boom (Willem) , M.G. Faure (Michael)
Erasmus University Rotterdam
EDLE - The European Doctorate in Law and Economics programme
Erasmus School of Law

Weber, F. (2012, June 28). Towards an Optimal Mix of Public and Private Enforcement in Consumer Law: A comparative law and economics analysis of European consumer law enforcement (package travel vs. misleading advertising). EDLE - The European Doctorate in Law and Economics programme. Retrieved from