Behavioral Economics Goes to Court: The Fundamental Flaws in the Behavioral Law & Economics Arguments against No-Surcharge Laws

By Zywicki, Todd J.; Manne, Geoffrey A. et al. | Missouri Law Review, Summer 2017 | Go to article overview

Behavioral Economics Goes to Court: The Fundamental Flaws in the Behavioral Law & Economics Arguments against No-Surcharge Laws


Zywicki, Todd J., Manne, Geoffrey A., Stout, Kristian, Missouri Law Review


I. INTRODUCTION

Should merchants be permitted to charge a consumer a higher price if the consumer wants to pay with a debit or credit card than if she uses cash or the retailer's proprietary credit card? In 2017, the Supreme Court heard argument in the case of Expressions Hair Design v. Schneiderman, (1) a challenge brought by New York retailers to strike down a state law (2) that prohibits merchants from imposing surcharges on consumers who use payment cards. (3) Several other states, including Florida, California, and Illinois, have enacted similar laws. (4) Critics of state no-surcharge laws (as well as some courts) contend that, because surcharging and discounting are effectively economically indistinguishable, the only difference between them is the label used to describe them and thus that banning one of these labels constitutes an impermissible state restriction on commercial speech:

The Eleventh Circuit... in reviewing Florida's credit-card surcharge
ban under the First Amendment [held that] : "[t]autologically speaking,
surcharges and discounts are nothing more than two sides of the same
coin; a surcharge is simply a 'negative' discount, and a discount is a
'negative' surcharge." The panel thus recognized that the "sole effect"
of Florida's surcharge ban was to keep sellers "from uttering the word
surcharge, criminalizing speech that [was] neither false nor
misleading." (5)

The Second Circuit, reversing the district court, upheld New York's law and rejected the merchants' claim that permitting merchants to offer "cash discounts," but not to offer "credit surcharges," constitutes an impermissible restraint on commercial speech under the First Amendment. (6) The Supreme Court disagreed and remanded the case to the Second Circuit for further consideration consistent with the Court's holding that the New York state law, as applied, constitutes commercial speech regulation. (7)

Other challenges in other states had been brought on the same or similar grounds, resulting in a circuit split with the Second and Fifth Circuits on one side and the Eleventh Circuit on the other. (8) The merchant challengers of these laws argued that, because the laws prohibit them from posting a single, cash price (and then charging credit card customers more than the posted price at the register), their First Amendment rights were impermissibly restricted under the laws. (9) The states that have enacted these laws--and the courts that have upheld them--argued that the statutes do not limit speech but actually limit conduct: the action of imposing a monetary surcharge on a consumer who desires to use a payment card, not the mere labeling of the practice as either a cash discount or a surcharge. (10) They further argued that, even if the state laws do affect speech, they do not impose an impermissible restriction on speech under the First Amendment. (11) Following the Court's decision in Expressions Hair Design, the argument will now turn to this question.

Although the merchants' core argument rests on the First Amendment, they invoke Behavioral Law and Economics ("BLE") to support their claim. Specifically, they argue that, from the perspective of consumers, it actually matters whether a particular price adjustment is quoted as a surcharge or a discount --that its label, and not its underlying mechanics, affects consumer conduct. (12) They thus contend that, because consumers "are much more likely to respond to surcharges (perceived as losses for using credit) than to discounts (perceived as gains for not using credit)," (13) the state's no-surcharge law impermissibly restricts speech. (14)

Based on various concepts taken from Behavioral Economics ("BE"), (15) the merchants argue that there is no relevant difference between the conduct involved in surcharging versus discounting; that labeling a particular price adjustment to be a "surcharge" will be more effective at diverting consumers away from network-branded credit cards; and that this will lead to increased use of supposedly less-expensive payment devices such as cash:

Because both credit-card surcharges and cash discounts ultimately
amount to equivalent differences between the price charged to
credit-card customers and the price charged to cash customers. … 

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Behavioral Economics Goes to Court: The Fundamental Flaws in the Behavioral Law & Economics Arguments against No-Surcharge Laws
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.