Self-Regulation

Self-regulation shall be considered in the narrow sense, namely, as limited regulatory powers over a certain industry. As regards advertising, a code of conduct must be observed. The self-regulation system is financed entirely by the industry. Complaints can be brought, generally free of charge, in the event of breaches of the code. This procedure does not reflect an equal representation of consumers and traders. Such type of body typically offers some ex ante advice. Changes are made to the advertisement (in the event of a successful case and a compliant trader), and consequently everyone profits from this. All other remedies are excluded at this self-regulatory body. In fact the result of the described process is similar to an injunction. In practice this system plays a larger role than CADR bodies.

Again, the 'rational apathy' can be an issue in reporting, and individuals (consumers, traders) or representatives need to be motivated to act. Costs are borne by the market in which the self-regulation is applied.[1] In contrast to public regulation, one advantage lies in the fact that self-regulatory authorities have better information about the market to be controlled, which includes tracing wrongdoers.[2] Also, individuals just need information about the ad and not about the wrongdoer in order to file a complaint. Some traders, intuitively particularly Case Scenario 2 traders, will not participate in this type of system.[3]

The advantage in terms of information has to be contrasted with the risk of capture, which is by definition given with self-regulation. The involvement of the consumer side in the proceedings can potentially mitigate this effect. There are other potential benefits with self-regulation: for instance, it does not pose a problem under the agency issue, as no representative is needed.

Despite being limited in scope, the regulating body can create considerable benefits for case scenarios where traders are compliant. In Case Scenario 2, in the case of a trader who is not willing to comply and is potentially reluctant to become a member of the sector organization, this enforcement mechanism will be unable to force the trader to comply with its decision. However, Case Scenario 1 could be dealt with successfully. It is suggested that the cooperation with media owners is weak when it comes to internet media owners, not least because there are no legal obligations for them to cooperate.[4] An advantage in particular for the Case Scenario 1 type of trader can be seen in the offer/possibilities to check the advertisement before it is put on the market: for instance, on a voluntary basis. The voluntary aspect can lead to signaling as to which trader represents which type, and would allow for some targeted monitoring: for example, in cooperation with other enforcers. Furthermore, efficiency might speak in favour of setting up ways according to which findings by this body can be used as indications in other judicial proceedings: for example, damage cases.

While generally one single complaint is sufficient, collective actions can contribute in the event that an exertion of pressure is needed. It can be desirable where individuals feel disinclined to complain due to low damages and to having little interest in preventing the trader from acting in the future. In some cases, the competitor might also have no monetary interest in intervening: for instance, as soon as a sector is organized in a cartel-like fashion. Here, the body will also not act on an own motion. For a representative's cost-benefit analysis as well, the low procedural costs will encourage them to actually complain here first. An intervention by a representative with investigative powers can enhance efficiency by generating more comprehensive information within the system. As stated previously, self-regulators generally have considerable information about their own sector and its participants. Depending upon who brings the case, there might be issues as to various entities that can be captured and agency issues. As already mentioned, the underlying threat of other enforcement systems is crucial.

From an administrative costs point of view, self-regulation costs are regarded as low compared with, for instance, public enforcement.[5]Because no damages are granted, administrative costs are presumably even lower than those involving a CADR body. However, the prevention of other societal costs has to be assured in the self-regulatory body's design. Then again, if a pre-clearance system is in place, its financing must be envisaged. Nevertheless, the way this mechanism can be used in this case scenario is not in the way of assessing damage, deciding on injunctions or fining, but is a preliminary step to changing a misleading advertisement, a less binding 'injunction'. Thus, while it might often be only a first step, the lower administrative costs could justify implementing this mechanism despite the few cases that double. The exact extent of the administrative costs depends on what the self-regulatory entity precisely looks like, and in how far it is coordinated with other entities in the enforcement mix. It does not provide a solution for every case, and it cannot exist as the only enforcement mechanism. Efficiency considerations might support that within the mechanism the funding is distributed to these established tasks, and that self-regulatory bodies do not engage in preparing collective actions. Some monitoring effort might be imaginable, however, but only as regards the code of conduct.

The value of self-regulation is in being a potential low-cost cross-financer for more costly procedures and in providing for some ex ante action. The results of the self-regulatory body have to be monitored carefully with regard to pursuing social welfare interests, as it is self-evident that it is more inclined to pursue industry's interests.

  • [1] See JC Miller, 'The FTC and Voluntary Standards: Maximizing the Net Benefits of Self-Regulation' (1985) 4(3) Cato Journal 898. Industry bears the costs of self-regulation: I Ayres and J Braithwaite, 'Responsive Regulation: Transcending the Deregulation Debate' (1992) 114; Ogus (1994) 107; see RH Coase, 'Advertising and Free Speech' (1977) 6(1) Journal of Legal Studies 6, but it has to be looked at with suspicion.
  • [2] See Van den Bergh (2007) 202; Miller (1985) 897.
  • [3] See F Alleweldt et al. (Civic Consulting on behalf of IMCO), State of Play of the Implementation of the Provisions on Advertising in the Unfair Commercial Practices Legislation (2010) 22.
  • [4] See P Verbruggen 'Transnational Private Regulation in the Advertising Industry -Case Study Report for the Research Project Constitutional Foundations of Transnational Private Regulation (March 31, 2011)' (2011) 125, ssrn.com/abstract=2256043.
  • [5] See Faure, Ogus and Philipsen (2009) 171. 'If such a system is able to achieve compliance, it will typically do so at a significantly lower administrative cost than if public enforcement processes are invoked.'
 
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