There’s a fabled version of the free market that says consumers are almost always well-served by companies. If not, the story goes, consumers can just shop somewhere else. This threat — losing customers to competitors — creates an almost magical force pushing companies to act more in the interests of consumers. No need for government involvement. Competition will take care of the job.
WASHINGTON, DC - AUGUST 29: White House press secretary Karine Jean-Pierre and Domestic Policy Advisor Neera Tanden answer questions during the daily press briefing at the White House on August 29, 2023 in Washington, DC. Jean-Pierre and Tanden answered questions on a recently announced list of the first ten medicines that will see a decrease in price following negotiations with Medicare.
“I had a newspaper subscription where it was literally three clicks to subscribe, and then to end my subscription, it was 45 minutes on the phone,” Tanden says. “There's really no reason that it should take so much longer to end a subscription than it is to start a subscription.” We asked Tanden why she believed the government needed to step into this arena and goad companies into improving customer service. In a competitive, free-market economy, shouldn’t companies already face strong incentives to treat their customers well? If one company provides shoddy customer service, wouldn't another company adopt better practices in order to entice their customers?
In other words, consumers don’t have full information about company practices when they’re shopping and may not foresee issues that will annoy them later. Even in a competitive market, she says, “I think this gray area makes it just a lot easier for companies to end up providing poor services.
“What we're really trying to do is essentially even the playing field,” Tanden says. “So companies that wanna do the right thing can do the right thing because they won't lose money to other companies that are basically holding onto your dollars when they shouldn't.”The behavioral economists Richard Thaler and Cass Sunstein coined a term for when companies and governments adopt systems that make it hard for people to make choices: “sludge.