Cell-phone contract research by Bar-Gill and Rebecca Stone '09 attracts FCC attention

A paper by Professor Oren Bar-Gill and Rebecca Stone ’09 on consumer confusion regarding cell phone contracts has attracted the attention of the Federal Communications Commission, which invited Bar-Gill to present the paper’s findings at the FCC on April 9. Bar-Gill also consulted with FCC staff who are drafting new regulations for the cell-phone and other telecommunications service markets.

Mobile Misperceptions,” published in the Fall 2009 Harvard Journal of Law & Technology, posits that cell phone carriers design consumer contracts with the knowledge of “systemic mistakes and misperceptions” on the part of subscribers. Customers either underestimate their monthly usage, resulting in overage fees, or overestimate the level of service required, resulting in unnecessarily expensive plans. Contract lock-ins and the sheer complexity of calling plans also contribute to the problem, the authors argue.

“The most striking finding, I think, is that many subscribers don't know how they use (or are going to use) their cell phone,” Bar-Gill said. He and Stone estimate that such mistakes cost U.S. consumers $12 billion a year.

Stone, currently clerking for Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit, worked in behavioral economics before coming to NYU Law. She said that her background made the project, which she called “a great experience,” particularly interesting. Stone, a former assistant professor of economics at the University of Leicester, holds both an M.Phil. and D.Phil. in economics from the University of Oxford as well as a B.A. in politics, philosophy, and economics.
Visiting Professor Jonathan B. Baker, the FCC’s chief economist, initiated the FCC meetings. Bar-Gill and Stone co-presented the paper at a law and economics workshop at Harvard Law School on April 5. Bar-Gill will also present the paper at the American Law and Economics Association’s annual conference at Princeton University in May.

Posted on April 21, 2010