Digital Advertising and Purchasing: Fun or a New Type of Deception?

Abstract

The interactive digital platform for advertising and purchasing is fun. It can also be manipulated in a way that leads to deception and misleading advertising. This paper uses the example of “drip pricing” as an illustration of the larger challenges in the digital world. Drip pricing is an advertising technique in which firms frontally advertise only part of a product’s price, and later reveal other charges as the customer navigates the buying process. Behavioral economic research is surveyed which finds that drip pricing often impacts consumer decisions so that they spend more money than they had originally budgeted or anticipated. Our central thesis is that the complexity of the product or service should be the governing principle in regulating digital advertising in the future. Products in the digital market will range from tickets to a live event to the purchase of a car with specific options. The paper proposes four general principles as an approach to regulate the digital economy: Principle one: When a product or service being digitally advertised is transparent, in the sense of being relatively simple to apply, the first screen that a consumer sees should display all-inclusive information (such as pricing). Principle two: Where the product or service being advertised has complex options, the first screen that a consumer sees should contain a description of the methodology to be applied in subsequent screens in accordance with a matrix of timing and complexity. Principle three: The interactive digital process should facilitate consumer reversal of choices to the extent that the technology will permit Principle four: In the case where there is a finding that a digital process constitutes a violation of competition law, an aggravating factor in the assessment of penalty should be whether disadvantaged consumers are impacted in their ability to satisfy basic needs.