Sherman Hanna, The Ohio State University¹

The explosive growth in the Internet has led to new opportunities for consumers, but also challenges for consumer protection. Between the mid-1980's and the mid-1990's, electronic communication and commerce was basically the relatively orderly and monitored information available through online services such as CompuServe, America Online, and Prodigy. Today, however, direct access to the Worldwide Web, has reduced the role of online services (Eng, 1996; Sandberg & Ziegler, 1996). With online services, there was the potential of holding the provider responsible for consumer protection problems, as one might attempt to hold a television network or magazine responsible for the deceptions of advertisers. The Web is basically anarchy, however, with the number of Web pages estimated at over 25 million in 1996 (Ziegler, 1996), with an initial projection of 320 million for 1998 (Treese, 1998) but the actual number seems to have exceeded 1.7 billion in 1998 (How many Web pages are there?, 1998). Treese (1999) estimated that there were almost 150 million Internet users in the world at the end of 1998, with 760 U.S. households getting connected every hour. Bridis (1999) gave 200 million as the number of Internet users around the world in 1999, with explosive growth projected, and more than 300 billion dollars of revenue generated in 1998. There may be one billion Web users worldwide by the year 2005 and "... global e-commerce market is expected to reach $1.2 trillion by 2001"(Internet Economy Indicators, 1999).

Commerce is growing in cyberspace, especially as methods have developed to make credit card transactions reasonably safe (Rupley, 1996). As of 1996 there was still some controversy about how safe transactions are (Sandberg, 1996) but the majority opinion seems to be that the major credit card companies have developed methods that are at least as safe as handing a waiter your credit card in a restaurant (Holland, 1996).

There are many advantages for consumers of electronic commerce using the Internet. Consumers can benefit from the greater competition typically brought about by Internet commerce. A classic example is the Web seller of books, records, and now other items, Amazon.com. After a year of rapid sales increases from offering convenient searching for and ordering of books on the Web, Amazon started a fierce price war by offering best sellers at 50% off. Consumers will benefit, although local retailers will suffer. One potential benefit of the Internet for consumers was pointed out by Hanna (1995) and Finke, et al. (1995): the Internet may be a relatively low cost way for consumers to find the most efficient product and service choices in terms of all of the price and quality combinations being offered in the marketplace.

There are many examples of popular consumer uses of the Internet already, including shopping for autos (Berst, 1999, May 24), loans (Fletcher, 1999), travel (Strother, 1999), and even groceries (Enbysk, 1999). There is a television commercial running in June, 1999 that shows people ordering items over the Web, and then the item magically comes out of the printer. Obviously for physical items that is only possible in science fiction, but use of the Internet further increases consumer uses of delivery services (the commercial was for United Parcel Services). Furthermore, there are many consumer purchases that are for intangible items, such as travel (electronic ticketing is becoming very common in the United States) and publications.

I have purchased many travel services over the Web, and this is one place where the Web is far superior for consumers to traditional retail travel agents -- simply because there are computer databases that allow for rapid price comparisons from the millions of possible routes and fares. No printed publication could ever include all possible routes from Columbus, Ohio to San Francisco, but with the Web it is pretty easy and free. I even used the Web to shop for a car in 1996. I recently ordered socks from the JC Penny Web site (www.jcpenney.com) and the process was much easier than spending an hour or more finding them in a store. Perhaps women are more particular than men on such things, but my wife has ordered some clothing items over the Web. Some people say that using the web is not much different from using the telephone or mail to order from catalogs, which has been going on in the United States for over 100 years. However, once graphics and transmission speeds improve for home computers, I think catalogs will eventually become obsolete.

Not all businesses will find the Web an important way to market products, and in some cases, the Web, by providing better information for quality comparisons, might actually increase the prices that consumers pay (Jenkins, 1999). However, even in such cases, consumers will benefit from more reliable purchases. Clearly, in the next century, the Web will become one of the most important ways for consumers to shop and actually purchase products. It will have tremendous advantages for consumers with limited time, for those with physical disabilities that make it difficult to go shopping, for those who live in congested metropolitan areas where shopping may be difficult, and for those who live in isolated rural areas.

One aspect of Web commerce that has tremendous implications is for international consumer transactions. This is still somewhat limited, partly because high household penetration rates are still in the future for many countries. The United States is far ahead of most of the world in providing the structures for reliable electronic commerce for consumers (Seminerio, 1999). However, as the private and public institutional structures catch up, other countries will contribute more than the U.S. to the growth of electronic commerce. Part of the reason is one of language – even through the American origin of the Internet has meant that a majority of Web sites are in English, the Internet also makes it easier for international commerce.

Approximately 5,000 languages are used in the world (Crystal, 1997, p. 362). Only about 400 million people speak English as a mother tongue, and 350 million people use it as a second language, and another 100 million people use it a foreign language (Crystal, 1997, p. 362). Another several hundred million people might have enough ability in reading English to be able to do simple navigation of Web sites. Therefore, approximately one billion of the world’s almost six billion people (U.S. Census Bureau, 1999) might be able to navigate a Web site in English. Clearly, more than one sixth of the world’s commerce is transacted in English. Over two-thirds of the world’s scientists write in English and 80% of the information in the world’s electronic retrieval systems is in English (Crystal, 1997).

It is likely, however, that most people would feel more comfortable making purchases in their mother tongue (Internet Economy Indicators, 1999). This is much less of a problem for the Web than for other methods of communication, however, and the Web can provide a large number of language alternatives. Already, most automatic teller machines in Europe provide at least four language choices, but there is no inherent limit to the number of language choices that could be provided on a Web page.

There will be great benefits to consumers around the world from having access to more sellers of products and services, but as will be discussed below, there are many challenges for consumer protection.

Cyberspace is such a new medium that government regulation has not kept pace with it, although there has been a start (Salt Lake City Tribune, 1996). In the United States the growth of cyberspace comes at a time when there are budgetary and ideological pressures to reduce government regulation. Cyberspace is also a borderless phenomena. A Commissioner of the U.S. Federal Trade Commission pointed out that "(T)echnological advances in telecommunications and finance allow scam artists in one country to communicate easily with victims in another country and to transfer their ill-gotten gains from one country to another." (Starek, 1995). It will be very difficult for governments to regulate commerce in cyberspace.

What role should the government play in consumer protection in cyberspace? Are market remedies against misrepresentation adequate (e.g., Posner, 1992, p. 110)? If consumers are informed, or if repeat sales are important, market forces may tend to correct problems for consumers. However, consumer dealings with anonymous cyberspace merchants may not fit Posner’s prescription for laissez-faire.

What are the causes of consumer protection problems. Ignorance is an obvious candidate for a source of consumer protection problems. However, if a consumer is ignorant but skeptical, damage may be limited. Various human weaknesses, including greed, desire for a cure, and lust can lead to many types of consumer protection problems.

Cyberspace offers many opportunities for investors (Hannon, 1996; Rupley, 1995) although there are still information gaps (Middleton, 1996) and outright deceptions (Weiss, 1995). One problem with investing fraud is that it might take a long time for an investor to discover that there is a problem. For investors in the United States, all of the regulations of the Securities and Exchange Commission should apply, but there is obviously a difference between trying to recover funds from your local stock broker and some cyberspace boiler room operator. The general problem predates cyberspace by many years, perhaps dating back to when long distance telephone calls became relatively cheap. Investors may ignore common sense because of their own greed to beat the market. Consumer education may provide some help. Even though there is still some controversy about the Efficient Market Theory (Malkiel, 1995), stress of that concept may inoculate some investors against either an attractive looking Web page offer or a smooth talking swindler on a cold call.

There are about 15,000 medical Web sites (Freudenheim, 1999), some of which are worthwhile. However, there are also a large number of dubious Web sites. For instance, one company in the Ukraine offered a magnetic device that is said to cure sexual dysfunctions and various other ills. The consumer merely needed to send $99 by Western Union to the address listed. The advantage of cyberspace over toll-free numbers for such orders is that working knowledge of written English is much wider than fluency in spoken English. Therefore, scam artists can operate from any country that has Internet connections.

Since the early days of public availability of the Web, pornography has been a popular use of the Web, and many important innovations for electronic commerce were perfected on pornographic Web sites (Berst, 1999, June 8). Web sites now even feature the world’s oldest profession (Brunker, 1999). Consumers buying pornography from Web sites probably have to rely on market remedies, since government consumer protection agencies are unlikely to crack down on deceptive practices even if consumers were willing to file complaints. (Protection for children is another issue, still in legal dispute in the United States, and parents must rely on blocking software to keep children from finding or stumbling upon pornography.)

Government agencies obviously have a role to play, and have slowly started to pay attention to the cyberspace phenomena (Yang, 1996). Government has only limited resources to police cyberspace. With the number of Web pages exceeding a billion, consumer protection is very difficult. For some consumer problems in the U.S., such as product safety, civil actions, such as medical malpractice and product liability cases can help reduce the extent of consumer problems in the long run. Civil actions are not likely to be effective against the international and/or fly-by-night nature of cyberspace commerce.

Given that most cyberspace commerce is conducted through credit cards, it may be that credit card companies will provide the greatest assistance to consumers. It is no accident that Mastercard was one of the original sponsors of the Web Page for the National Fraud Information Center (www.fraud.org) which solicits complaints about cyberspace fraud. If the major credit card companies would act against merchants who cheat consumers, there would be a powerful force against fraud in cyberspace.

The main way that consumers find commercial sites is through using a search engine or index. For instance, under Yahoo.com, one can either search, or use its index of topics. One can quickly get to providers of dubious medical cures through the Yahoo index. If judges found that search engines had some legal liability for fraudulent commercial services, or such liability were legislated, some consumer protection might be provided.

Cyberspace is changing so rapidly that it is difficult to project the future more than a few months in advance. International agreements are needed, and the application of existing laws against fraud to Cyberspace must be clarified. It is possible that Internet providers could be held responsible for deceptive marketing, just as the U.S. 1996 Telecommunications Act has attempted to hold them responsible for pornography. However, consumer education and private industry initiatives may provide the most protection.

Electronic commerce on the Web will provide tremendous benefits to consumers in the next decade, because of ease of use, easier comparisons of prices and quality, and greater competition. It will also pose tremendous challenges for consumer protection agencies. International cooperation will be required because of the global nature of the Web. Ultimately, consumers will have to become informed and skeptical, because government agencies will be unable to effectively regulate billions of Web pages. One simple measure consumers can take is to rely on brand names, because large companies should have an incentive to be reasonably honest to protect their reputations and obtain repeat sales.

Electronic commerce also will continue the creative destruction of capitalism, spurring disintermediation, with traditional retail outlets from bookstores to travel agencies forced to change or die (Hof, 1999). The changes will be uncomfortable for many businesses, but similar changes in the past have benefitted consumers.

Berst, J. (1999, May 24). Upgrade your life online: Jesse buys a car. [WWW document] URL: http://chkpt.zdnet.com/chkpt/adem2fpf/www.anchordesk.com/story/story_3417.html

Berst, J. (1999, June 8). What you can learn from *secks* on the Web. [WWW document] URL:http://chkpt.zdnet.com/chkpt/adem2fpf/www.anchordesk.com/story/story_3480.html

Bridis, T. (1999, June 10). E-Commerce is booming: More Than $300 billion in revenues last year. [WWW document] URL: http://www.abcnews.go.com/sections/business/DailyNews/economy_internet990610.html

Brunker , M. (1999, June 2). The streetwalkers of cyberspace. [WWW document] URL: http://www.msnbc.com/news/274415.asp

Crystal, D. (1997). The Cambridge Encyclopedia of Language, second edition. New York: Cambridge University Press,

Enbysk, L. (1999, May 25). Let someone else bring home the bacon. [WWW document] URL: http://chkpt.zdnet.com/chkpt/adem2fpf/www.anchordesk.com/story/story_3425.html

Eng, P. M. (1996, March 4). War of the Web. Business Week, pp. 71-72.

Federal Trade Commission. (1999, June 10). E-Commerce & the Internet.[WWW document]

URL: http://www.ftc.gov/bcp/menu-internet.htm.

Finke, M., Ismail, M., Chen, P., Jayathirtha, C., Wang, H., Park, S. & Hanna, S. (1995). How much should consumers be willing to pay for information about quality and price? Implications for Cyberspace. Family Economics and Resource Management Biennial, 1, 21-22. Also available as a WWW document (in Acrobat format) at URL: http://www.hec.ohio-state.edu/hanna/ferm/cont95.htm

Fletcher, J. (1999, June 11). Should you get a mortgage online? Wall Street Journal, p. W12.

Freudenheim, M. (1999, June 13). Brimming with wealth. New York Times, p. BU 1.

Hamilton, A. (1999, May 27).Annette's online auction secrets. [WWW document] URL: http://chkpt.zdnet.com/chkpt/adem2fpf/www.anchordesk.com/story/story_3435.html

Hanna, S. (1995). Will cyberspace help families and consumers manage their resources? Family Economics and Resource Management Biennial, 1, 1-2. Also available as a WWW document (in Acrobat format) at URL: http://www.hec.ohio-state.edu/hanna/ferm/cont95.htm

Hannon, K. (1996, January 29). Bonanza on the Net. U.S. News and World Report, pp. 86-88.

Hof, R. D. (1999, June 22). The ‘click here’ economy. Business Week Online [WWW document] URL: http://www.businessweek.com/1998/25/b3583001.htm

Holland, K. (1996, February 19). More hacker-proof than thou. Business Week, p. 34.

How many Web pages are there? (1998, June 10). [WWW document] URL: http://www.freelance.co.nz/webpages.htm

Internet Economy Indicators (1999, June 12). The global internet. [WWW document] URL: http://www.InternetIndicators.com/global.html

Jenkins, H. W Jr. (1999, June 9). Here comes Web War II. Wall Street Journal, p. A27.

Malkiel, B. G. (1995). A random walk down Wall Street. New York: W. W. Norton.

Middleton, T. (1996, February 18). Lots of data, many gaps in on-line research. New York Times, p. F3.

Posner, Richard A.(1992). Economic analysis of law, Boston: Little, Brown and Company,(Fourth edition).

Rupley, S. (1996, March 26). Mastercard and Visa join forces for Net commerce. PC Magazine. p. 34.

Sandberg, J. (1996, February 21). Major flaw in Internet security system is discovered by two Purdue students. Wall Street Journal, p. C17.

Sandberg, J. & Ziegler, B. (1996, January 18). Web trap: Internet’s popularity threatens to swamp the on-line services. Wall Street Journal, pp. A1, A9.

Salt Lake City Tribune (1996, March 16). S. L. firm faces charge over ad, p. B-5.

Seminerio, M. (1999, June 10). Study: U.S. out ahead on e-commerce. [WWW document] URL: http://www.zdnet.com/filters/printerfriendly/0,6061,2272275-2,00.html

Starek, R. B., III (1995). Consumer protection in the age of borderless markets and the Information Revolution. Speech at the Conference on Transborder Consumer Regulation and Enforcement, Canberra, Australia.

Strother, N. (1999, May 26). The hidden turbulence of online travel planning. [WWW document] URL:http://chkpt.zdnet.com/chkpt/adem2fpf/www.anchordesk.com/story/story_3413.html

Treese, W. (1998, May 31; June 10) The Internet index. Number 22. [WWW document] URL: http://www.openmarket.com/intindex/98-05.htm

Treese, W. (1999, May 31; June 10) The Internet index. [WWW document] URL: http://www.openmarket.com/intindex/99-05.htm

U. S. Census Bureau (1999, June 12). World POPClock Projection [WWW document] URL: http://www.census.gov/cgi-bin/ipc/popclockw

Weiss, G. (1995, November 20). The hustlers queue up on the net: Penny-stock scam artists are surging online. Business Week, pp. 146-147.

Yang, C. (1996, February 5). How do you police cyberspace? The FTC’s Varney wants Net folk to help write the rulebook. Business Week, pp. 97-98.

Ziegler, B. (1996, March 28). Up and running. Wall Street Journal, pp. R6, R17.

http://www.hec.ohio-state.edu/hanna/cyber/index.htm