Some regulation has the assumption that although consumers are rational, they lack a sufficient amount of information to make decisions. For example, federal regulations need the Food and Drug Administration to identify whether the prescription of a particular drug is safe and effective instead of expecting consumers to do this on their own.
The advantage of consumer protection arises when consumers are prevented from making choices they would regret if they had more information. For example, if a consumer purchases a drug that later on proves to be ineffective, will likely stop consuming it.
The government saves the consumer from the cost of learning this lesson by giving authority to the Food and Drug Administration. In analyzing the advantages of consumer protection, one problem is that at times, the laws on their own may influence behavioral changes that either work for or against the purpose of the regulation.
For instance, the need for childproof medicine containers has made people negligent towards medicines. The requirement for mattresses to be flame-resistant may make people less careful while smoking in bed.
Such cases may worsen the problem which initially the laws pursue to correct. This is due to the behavioral changes associated with consumer protection laws.
Consumer protection is a permanent and ongoing practice in which businesses are closely monitored in order to make sure that they are following the legislation correctly and are not unfair to consumers in the market.
Consumer protection laws play an important part to reduce the growth of monopolies and to assure that consumer is dealt with fairly by the companies.
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