IT Consumers Need Fuller Disclosure:

Privacy, Security, Labeling and Online Safety


Consumers can make rational choices only when they are given full and accurate information about their options.  Indeed, insufficient, misleading, or otherwise incomplete information is a prime cause of both market and government failure.  Consumers pay, and pay dearly, when they are not given sufficient information to make well informed market choices.  While traditional products and services usually have uniform labeling, information technology services do not always have the same level of nationwide uniformity with respect to service terms, guarantees, limitations, warnings and privacy risks, leaving consumers second-guessing or assuming away risks.  Better information, including fuller disclosure of service limitations, privacy risk and other terms of service can help consumers make better choices, reduce search costs, improve online safety and otherwise benefit consumers.  Consumer welfare would be increased if companies that offer IT services would be more diligent in providing their customers with comprehensive information about practices that may affect consumers or potentially compromise privacy.



The Costs of Imperfect Information

Consumer welfare and the overall efficiency of the economy are undermined by imperfect or asymmetric information, which occurs when sellers have more and better information than buyers.  While many traditional goods and services are subject to standardized labeling, truth-in-labeling laws and child-proof packaging, many online services and products do not have the same level of standardization.  Nonetheless, fuller disclosure would be beneficial in terms of consumer protection of private information, consumer rights, online safety and service choice.  The following examples are illustrative: 

·         Software and Online Applications.  There are many examples of inadequate information, “legalese” of privacy terms, hard-to-understand, or find, service/product policies, software that is uninstalled only to reappear later and so on.  While some companies have gone the extra mile to provide as much information as consumers may want, others have not.  Consumer welfare would be enhanced if online firms provided fuller disclosure of their privacy policy, including how they will use and protect consumer information.

·        Online Safety.  While personal information is being collected on you, with and without your knowledge, it can also be collected on your children.  While the public needs education and better tools for protecting their families, web-centric companies can and should do more to foster a culture of safety, protection and privacy.  

·        Spyware and Behavioral Targeting.  Some have been critical of online privacy policies that permit spyware and cookies onto consumer computers in order to collect online consumer browsing history associated with personal identification information – information that is then used to target advertising.  Several companies retain consumer browsing history for up to 18 months.  One suggestion should be for consumers to be permitted to “opt out” of behavioral targeting and avoid programs that track consumer browsing history, as well as spyware that is routinely saved to their computers.  In any case, consumer welfare would be enhanced if web companies were upfront about their use of cookies to snoop on consumer online activities.  Consumers should have control and be given choices.

·         Online Privacy, E-Mails and Browsing.  Google’s Gmail provides several useful and “free” email search features.  However, consumers that use Gmail accounts have their messages scanned for behavioral targeting.  Moreover, nonsubscribers replying to a Gmail account may also have their emails examined, even though they never consented to such inspections.  Then there is Chrome, a new Internet browser, which, at least initially, collected keystrokes directly from online users’ computers and stored this information for the web company’s use. 

·         Free and low cost Printers.  Our studies indicate that consumers pay about 60% too much for computer ink, because, when buying a printer, the cost of printing a page is not readily available on printer, printer box, feature cards or ink cartridges.  In fact, there are no laws that prevent manufacturers from slack-filling cartridges and selling them to the public.  The costs of printing can vary nine-fold, depending on the printer.  In just three years of use, printing costs can be more then ten times the initial cost of the printer itself.  This means that the “free or inexpensive” printers you got with your computer were not free after all.  Clearly, the industry needs to do a better job of giving consumers the information they need to buy the printer that is right for them, and retailers need to put these ink cost on the shelf’s feature cards.  Simple product labeling would facilitate consumer choice, encourage industry competition and save consumers, in total, $6 billion dollars per year.        

·         Internet Traffic Management.  When Comcast decided to manage network congestion by slowing down so-called bandwidth hogs, it opened itself up to public criticisms and regulatory inquiries.  While an ACI survey found that a majority of consumers believe that ISPs should manage network congestion to minimize the impact of bandwidth hogs, 66.2% of consumers wanted more disclosure of service limitations,[1] which may well have avoided Comcast’s public controversy. 

·         Peer-to-Peer (P2P) Software Providers.  P2P technologies, such as Vuze and BitTorrent, permit online users to download movies and other large files quickly and efficiently.  P2P technologies accomplish this by effectively using the online user’s computer as a server.  However, depending on the application, many consumers do not realize that they could be offering up all of their computer files for the public to see and download.  Consumers deserve to be sufficiently warned and protected from these potential risks.  Again, fuller disclosure by providers is needed to better serve consumer interests.


It’s Time for Industry to Do Better

These examples demonstrate that consumers need better information to make well-informed choices and it’s time for industry to step to the plate with more uniform and prominent disclosure of their privacy policies.  Full disclosure of service and privacy terms is an important part of protecting consumer information.  So far, the industry is a mixed bag of successes and failures.  Industry best practices are needed. 


In summary, information is relatively easy to produce and distribute to consumers, while requiring insignificant costs for manufacturers and providers.  Doing so would make better informed consumers whose decisions would create more welfare for them and for the economy.    


POSTED:  November 29, 2008




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[1] Based on a national survey of 648 Internet households (ACI, 2008).