Disclaimer

Disclaimer

Every effort has been made to ensure that the information

presented in this discussion paper is accurate at the time of

publication.

© Copyright State of Victoria 2004

This publication is copyright. No part may be reproduced by any

publication contact Consumer Affairs Victoria.

Published by Consumer Affairs Victoria,

452 Flinders Street, Melbourne, Victoria, 3000.

Authorised by the Victorian Government,

452 Flinders Street, Melbourne, Victoria, 3000.

Printed by Red Rover, 53 Brady Street, South Melbourne 3205

This discussion paper has been prepared by Consumer Affairs Victoria in line with our commitment to assist vulnerable

and disadvantaged consumers. To do this we need to better understand who they are.

Typically, vulnerability and disadvantage are considered in relation to an individual’s personal characteristics. However,

when considering vulnerability and disadvantage in the consumer context,

it is also necessary to have regard to the characteristics of markets which impact on decision making by, in particular,

affecting the availability of information.

The subject matter of the paper is not simply of academic interest. In fact, it gets to the heart of good consumer policy.

In an environment of constrained budgets, it is crucial to ensure resources are appropriately targeted in their use and

that the strategies adopted to assist the vulnerable and disadvantaged are the most efficient available.

Consumer Affairs Victoria would welcome your comments on the paper, These may be directed to:

Mr Rod Overall

Consumer Affairs Victoria

3/452 flinders Street

Melbourne

VIC 3000

Tel: (03) 9627 76557

Email: rod.overall@justice.vic.gov.au

Comments received will assist Consumer Affairs Victoria ("CAV") to further refine its consideration of this important subject.

Dr David Cousins

Director

1.1 Introduction ..............................................................1

1.2 Key points in analysis underlying definitions ............1

1.3 Implications................................................................2

2. Definitions ........................................................................3

3. Basic concepts ..................................................................4

3.1 Vulnerability................................................................4

3.2 Disadvantage ............................................................5

4. The consumer context ....................................................6

4.1 The market dimension ..............................................7

4.2 The personal dimension ............................................9

5. Consumer ‘injury’ ..........................................................10

5.1 A broader interpretation ........................................10

5.2 A narrower interpretation ......................................11

6. Vulnerability & disadvantage in the consumer context ..14

6.1 Factors in consumer vulnerability ............................14

6.2 Factors in consumer disadvantage ..........................15

6.3 Matrix of consumer vulnerability ............................16

6.4 Relationship between disadvantaged

and vulnerable ........................................................17

sources ............................................................................19

7.1 UK Office of Fair Trading ........................................19

7.2 UK National Consumer Council ..............................20

7.3 UK Department of Trade and Industry ................ 20

7.4 Australian Competition and Consumer Commission ....

......................................................................................21

7.5 High Court Amadio Case ........................................21

8. Proposed definitions ......................................................23

how to identify vulnerability in practice ......................24

9.1 Personal dimension..................................................24

9.2 Market dimension....................................................25

the UK..................................................................................26

References ..........................................................................27

Contents

A key objective of Consumer Affairs Victoria is ‘to improve access to consumer protection services, particularly for the vulnerable and disadvantaged’. CAV’s 2003-06 Strategic Plan requires the development of ‘a clearer understanding of the nature and extent of market vulnerability and disadvantage’.

A comprehensive definition of consumer vulnerability and disadvantage is a step towards this objective.

This paper attempts to define ‘vulnerable’ and ‘disadvantaged’ in a manner relevant to CAV’s objectives and functions. The development of a common understanding of the terms across CAV and its stakeholders will assist in evaluating the effectiveness of current services in meeting the needs of vulnerable or disadvantaged consumers and identifying gaps in CAV’s activities and lead to improvements in protection targeted to them.

This paper is distributed to promote discussion between CAV and its stakeholders on the concepts of consumer vulnerability and disadvantage and accordingly is not an ‘official’ CAV statement on the matters, and comments on the paper are welcome.

The analysis underlying the proposed definitions focuses -

*    on the characteristics of markets and consumption,

*    as well as personal capacities and circumstances,

that are likely to contribute to consumer vulnerability and disadvantage.

The analysis emphasises information issues: consumer vulnerability and disadvantage are viewed as the result of the interaction of particular market and transaction characteristics which may create information problems with personal capacities and circumstances that affect consumers’ access to and processing or use of information.

The ‘market dimension’ of consumption incorporates the motivations of buyers and sellers, consumers’ information requirements for successful purchases1 and the capacity of markets to ‘fail’ in ways that are detrimental to consumers.

The ‘personal dimension’ of consumption incorporates those attributes and circumstances of individuals that affect how purchase decisions are made (particularly access to and use of information) and how a consumer is positioned in transactions relative to sellers.

Variables in each of the market and personal dimensions affect consumer vulnerability, but it is not necessary for there to be problems in both dimensions for concerns about vulnerability to arise. Consumers with normal capacities and in ‘ordinary’ personal circumstances may still be susceptible to detriment, due to the characteristics of a particular market, product or transaction, for example where complex medical or legal services are purchased. Conversely, a consumer with constrained capacities or experiencing adverse circumstances, for example illiteracy, intellectual disability or physical impairment, may be susceptible to detriment in types of purchases commonly satisfactorily transacted by ‘average’ consumers.

1 Overview

Previous work by CAV on defining disadvantaged consumers focused on broader socio-economic indicators, particularly proxy indicators of adverse consumer circumstances such as low income and low educational attainment. The objective of this work was to identify such consumers among CAV’s clientele for performance reporting purposes rather than explore the causes of consumer vulnerability. The usefulness of such indicators should be reviewed in the light of the information-based approach and definitions proposed in this paper.

Some implications for CAV’s policy development and service delivery are suggested by the analysis underlying the definitions. In regard to policy development generally, an analytical framework that focuses on market, product and transaction characteristics with potential for information related problems seems likely to be most fruitful. Such a framework could inform CAV’s consideration of consumer protection problems generally, including the need for intervention in markets and forms of intervention.

The analysis also suggests that whether issues of concern arise from particular market characteristics may differ if viewed from the perspective of competition policy or consumer protection policy. For example, while a market characterised by easy entry and exit of firms is desirable from a competition perspective (as market power is unlikely to develop or be sustained), it may be a concern from a consumer protection perspective if ‘fly-by-night’ operators motivated to exploit consumers are easily entering and exiting the market.

In regard to CAV’s service delivery to address the needs of vulnerable and/or disadvantaged consumers, the paper’s analysis suggests a careful targeting with regard to both problematic markets/products/transactions and characteristics of individual consumers or groups of consumers.

A further implication is that a challenge to more effectively engage with stakeholders exists for CAV. This challenge exists regarding both the market and personal dimensions of vulnerability. In relation to markets with potential information problems, how can CAV most effectively monitor emerging developments and engage with businesses in relevant markets to better understand suppliers’ behaviours that may raise consumer detriment issues?

In relation to further refinement of the personal factors contributing to vulnerability, a sustained engagement with the following is required:

*    individuals experiencing these factors and their representative organisations;

*    businesses supplying goods and services (particularly essential products such as utility services) to people in these circumstances; and

*    other government agencies involved in policy development and service delivery to the relevant categories of individuals.

1 Overview

2 For an elaboration on the theme of a tension between the perspectives of competition policy and consumer

Consumer vulnerability is exposure to the risk of detriment in

consumption due to the interaction of market, product and

supply characteristics and personal attributes and

circumstances. The main cause of vulnerability is this

interaction resulting in inadequate information, poor access

to information and/or ineffective use of information by a

consumer or in the deterrence of complaint or the pursuit of

redress by a consumer.

Consumer detriment includes, in addition to physical harm or

monetary loss associated with a purchase, satisfaction less

than a consumer’s reasonable ex ante expectation and the

denial of a transaction sought by a consumer.

A vulnerable consumer is a person who is capable of readily

or quickly suffering detriment in the process of consumption.

A susceptibility to detriment may arise from either the

characteristics of the market for a particular product, the

product’s qualities or the nature of the transaction; or the

individual’s attributes or circumstances which adversely affect

consumer decision-making or the pursuit of redress for any

detriment suffered; or a combination of these.

Consumer disadvantage is a persisting susceptibility to

detriment in consumption.

A disadvantaged consumer is a person in persistent

circumstances and/or with ongoing attributes which

adversely affect consumption thereby causing a continuing

susceptibility to detriment in consumption. As a result, a

disadvantaged consumer repeatedly suffers consumer

detriments or, alternatively expressed, generally obtains

below-average satisfaction from consumption.

Not all vulnerable consumers are disadvantaged consumers.

Some consumers will be vulnerable only because of either

temporary personal circumstances that adversely affect them

in consumption; or adverse market, product or transaction

characteristics specific to a particular purchase, rather than

their purchases generally. Consumer vulnerability is the

broader concept, but both are relative and dynamic

concepts.

2 Definitions

The approach to constructing definitions of vulnerable

consumers and disadvantaged consumers adopted in this

paper is to start with the basic concepts from common usage,

then consider the consumer context (Section 4) and consumer

injury (Section 5). The concepts are refined by taking into

account the relevant features of consumption (Section 6).

Some examples of discussions of consumer vulnerability and

disadvantage from other sources are provided (Section 7) and

the proposed definitions set out (Section 8). The final section

discusses some implications for further work by CAV.

A person who is ‘vulnerable’ is capable of being easily or

quickly harmed or injured. Vulnerability also implies an

association with the concept of risk. An alternate formulation

of the meaning of vulnerability is that it is the state of

person who is highly vulnerable is very open to experiencing

detriment to his or her interests.

Vulnerability is a relative concept. There are varying degrees

of susceptibility to harm and one person may be more, or less,

vulnerable than another. A person’s degree of vulnerability

will be influenced by two categories of factors:

• ability to protect or defend against the chance of injury

or loss; and

• ability to cope with the negative consequences of

injury/loss when it occurs.

Vulnerability is a dynamic concept. It is likely that a person’s

vulnerability (in whatever respect) will change during the

course of his or her life. There are certain risks intrinsic to

specific stages in the life span and factors in the two

categories above are likely to vary over a life.

Two broad ‘dimensions’ of vulnerability can be identified:

• a person’s overall mental and physical capacities; and

• a person’s circumstances (in the broadest sense,

including income, age, class, ethnicity and so on).

The UK Better Regulation Task Force defined vulnerability by

reference to individual capacity and circumstance. It proposed

that these factors need to be considered both separately and

in combination to help determine the degree of vulnerability

in individual experiences. It observed that ‘full capacity will not

always mean that there is no vulnerability...’ and that

Normal capacities will not necessarily mean there is no

vulnerability, for example a sole parent with work skills unable

to work because of the absence of affordable childcare may

experience vulnerability due to low income. Also a

circumstance alone may not lead necessarily to high

vulnerability, for example an indigenous or immigrant family

background. Capacity and circumstance separately and in

combination will influence a person’s ability to protect or

defend against the chance of injury or loss and cope with the

negative consequences of injury when it occurs. These

3 Basic concepts

3 This risk-based definition is adopted in the Report of the Expert Workshop on Ways and Means to Enhance Social Protection

and Reduce Vulnerability, United Nations Commission for Social Development, November 1997 (E/CN.5/1998/5) p. 4.

4 Better Regulation Task Force (UK) Protecting Vulnerable People, September 2000, p. 13

A disadvantage is any unfavourable circumstance or

condition. Common usage of disadvantaged, as in ‘the

disadvantaged’, particularly connotes a persistence of the

unfavourable circumstances or conditions because the

individual cannot change them (such as mental incapacity,

race or ethnicity); or cannot readily or easily change them

(such as socio-economic status or educational attainment).

The persistence of unfavourable circumstances may be

attributed to factors inherent in the structure of the society.

For example, a report to the United Nations Economic and

Social Council states:

By “disadvantaged”, we refer to all groups that encounter

structural obstacles (i.e., obstacles created by society) to

access to resources, benefits and opportunities. Those

obstacles derive from the relationships of power which

exist in all societies and the relative value which society

gives to each group…The structural causes that underlie

disadvantage include race, ethnicity, gender, religion,

indigenous or national origin, and socio-economic

status.

5

Some adverse circumstances are temporary. Retrenchment,

which results in unemployment and the associated loss of

income, may disrupt a person’s usual pattern of consumption.

Depending on the duration of unemployment and the level

of financial resources able to be drawn on, the retrenchment

may cause financial and other hardships. However, the period

of unemployment may be relatively short and previous

consumption resumed. Such a temporary circumstance of

itself would not necessarily lead to the person being described

as ‘disadvantaged’. This is distinguishable from, for example,

the case of an indigenous single mother who probably would

be regarded universally as disadvantaged.

Disadvantage also is a relative and dynamic concept. There

are varying degrees of disadvantage: one person may be

more, or less, disadvantaged than another. It is possible that

the degree of a person’s disadvantage and/or the cause(s)

may change during the course of his or her life.

As standards of living rise over time in a particular society,

what is regarded as a disadvantage by one generation may

not have been regarded as disadvantageous by an earlier

generation. An example in respect of educational attainment

(and hence to a substantial degree employment, income and

consumption possibilities) is that being educated only to year

11 schooling probably would be considered a substantial

disadvantage now, but would not have been in the 1960s.

A number of factors may contribute to disadvantage. Some

of these tend to be experienced simultaneously. Some relate

to individual capacities; others to broader societal

circumstances, including structural factors arising from the

distribution of power in a society. Obviously, those who

experience multiple factors will be more severely

disadvantaged. It is apparent from the list below that an

individual cannot change or readily or easily change many of

these. A non-exhaustive list of factors could be:

• mental capacity;

• physical capacity;

• race or ethnicity;

• age;

• gender and sexual preference;

• health status;

• educational attainment;

• labour force status (employed or unemployed);

• income status; and

• geographical location (remoteness from urban-based

services).

3 Basic concepts

5

5 U.N. Report of the Expert Workshop, p. 4.

Vulnerability and disadvantage are concepts with very wide

potential application. As the report to the Economic and

Social Council of the United Nations comments: ‘Vulnerability

is a part of the human condition; some might say it is our

vulnerabilities that make us human. No one is without

definitions must be about consumer vulnerability and

disadvantaged consumers to be useful to CAV. Thus, the next

step is to focus on the pertinent features of consumption that

need to be incorporated in workable definitions. The analysis

in this section introduces the market dimension and also

focuses on the personal attributes and circumstances that are

particularly relevant to consumption.

A consumer is a person who purchases a good or service for

service to satisfy a physical or psychological need or desire –

for durable goods, use is spread over time. (The satisfaction

an individual derives from the consumption of goods or

services is referred to as ‘utility’ in economic theory.) Many

consumers purchase goods and services, particularly durable

goods, as a member of a household and these purchases

involve joint decisions to satisfy joint needs. Everyone is a

consumer and consumer spending underpins the national

economy as it accounts for 60 per cent of Australia’s Gross

Domestic Product.

Two major dimensions of consumption relevant to

considering consumer vulnerability and disadvantage can be

identified.

These are:

1. the market dimension – the nature of markets generally

and the characteristics of a particular market in

question; and

2. the personal dimension – individuals’ attributes and

circumstances which affect consumption decisions,

including personal capacities, the determinants of

preferences, income and the social context of

Referring back to the factors affecting vulnerability in Diagram

1 indicates that many of the personal capacity and

circumstance variables (such as mental capacity, age, income

etc.) that influence vulnerability are relevant to the personal

dimension of consumption also. Diagram 2 depicts the

consumer context of vulnerability.

4 The consumer context

6 U.N. Report of the Expert Workshop, p. 4.

7 Final consumption distinguishes these from goods or services used to produce other products.

8 These variables include psycho-social factors. Preferences and consumer behaviour may not accord with the premise of microeconomic theory,

that is, the individual consumer will purchase a combination of goods/services in line with his/her tastes to maximise total utility within his/her

budget constraint.

Personal

Dimension

Capacities &

circumstances

Vulnerability &

Disadvantage

Market Dimension

bargaining positions

bargaining positions

4 The consumer context

Consumer purchases are exchange transactions in markets. A

market can be defined as a collection of buyers and sellers

subject of transactions for consumers generally will be goods,

of exchange is money.

The main characteristics of markets relevant to our

considerations are:

• the tension in the motivations of the parties to a market

transaction;

• the information requirements of consumers for

successful purchases; and

• the capacity of markets to ‘fail’ in ways that are

detrimental to consumers.

A consumer engages in exchange with a supplier of a good or

service for the utility value of the particular good or service, in

other words for the satisfaction or pleasure that the use of the

good or service is expected to provide the consumer. The

supplier engages in the exchange for profit. In most

transactions the supplier’s objective in supplying the

In a particular transaction there is a tension between these

objectives: achieving one objective is not dependent on the

other being achieved. The supplier’s profit is not dependent

on the consumer fully, or even partially, obtaining the

satisfaction he or she expected from the purchased product;

and the customer’s satisfaction is not dependent on the

supplier obtaining a profit from the transaction.

Suppliers have a short-term motive to extract whatever gain is

possible from each transaction. However, for most businesses,

acting on this motive is tempered (to varying degrees) by the

existence of competing sellers in the market and dependence

on sales revenue from repeat custom for longer-term

profitability. Buyers generally will have other sellers to

purchase from. Unfair and ‘sharp’ dealings by a business or

supplying products that do not provide the satisfaction

sought by the bulk of its customers generate neither sales

revenue from repeat custom nor goodwill that can be

While there is an interdependence between consumers and

producers at the macroeconomic level through the circularity

of the ‘consumption-production-employment-incomeconsumption’

chain, at the microeconomic level there is no

interdependence between the individual supplier and

consumer in the shorter term. There is an incentive, if only for

unscrupulous suppliers in the short term, for suppliers to

exploit this situation. At its worst, the tension between

consumer and supplier interests can lead to attempts by

suppliers to deliberately deceive consumers. Even without

exploitative motivations on the part of suppliers, the level of

information that is optimal for suppliers to provide may differ

from the level of information that is optimal for consumers.

Consumer purchases obviously involve decisions. Rationale

choices – where a consumer tries to maximise his or her utility

given a limited budget – require information about:

• the capacity of products (substitutes and complements)

to satisfy the individual’s particular needs/desires;

• the terms and conditions of purchase; and

• the prices of relevant products across suppliers.

The theoretical construct of perfectly competitive markets

assumes that consumers and suppliers have the same and

complete information about the variables relevant to their

choices. In reality that is rarely the case. Differences between

the information possessed by buyers and sellers in a market

failure’ is discussed further below.

Where there is asymmetric information in a product market,

almost invariably sellers will have more information than

buyers. Some products would require the compilation and

comprehension of large amounts of technical knowledge for

prospective consumers to make informed decisions about

their quality and utility. The cost of obtaining such

information may be prohibitive to an individual. Even if it

were obtained, ordinary consumers would not be able to

comprehend the information and make knowledgeable

decisions based on it. In the case of most services (and some

products with a goods component such as restaurant meals)

their quality and capacity to satisfy needs can only be assessed

9 Pindyck, R. S. and Rubinfeld, D. L., Microeconomics, Macmillan, New York, 1989, p. 11.

10 ‘Real property’ is interests in land (with the exception of leasehold interests, however, being classified as personal property).

11 There are various theories about the economic objectives of suppliers, such as profit maximisation (the working assumption in the theory of

the firm), sales-revenue maximisation, asset-growth maximisation etc. These are beyond the scope of this paper.

12 ‘Fly-by-night’ traders will not be constrained by such longer term considerations.

13 This asymmetry is distinguishable from the potential asymmetry between ex ante and ex post information.

14 We would expect differences between ex ante and ex post information to result in difference between the optimal choices that would be made,

given the availability of either information. These different decisions, in turn, are likely to result in differences between ex ante expected utility

and ex post utility. This difference, however, should not be taken as evidence for consumer detriment. See the discussion of consumer

detriment in Section 6

Some suppliers may be inclined to exclude certain customers

from access to supply or provide them with information that

is inferior to that provided to customers generally. In other

words, a supplier informs or supplies a consumer on a

discriminatory basis due to the supplier’s perception of the

customer’s capacities or circumstances.

Discrimination may be based on cultural or racial differences.

Other examples are where a supplier does not provide

wheelchair access to the business’s premises or does not

provide sales information in languages other than English.

’The personal dimension’ section, on page 9, identifies issues

arising from the interaction of consumer information

requirements and personal capacities and circumstances. The

other side of the market, that is supplier behaviour in relation

to information disclosure, is not examined in any detail in this

paper, but it is obviously important to developing an

understanding of consumer vulnerability and how the

Markets may fail to operate competitively or produce efficient

outcomes for several reasons. There are four major sources of

asymmetries. Of these, the first two involve effects that tend

not to impinge on the position of individual consumers in

market transactions and are not discussed further here. The

last two are more relevant to a consideration of consumer

vulnerability or disadvantage.

A definition of market power is ‘the ability of a firm or firms

profitably to divert prices, quality, variety, service or innovation

Market power may be exercised either unilaterally by a single

firm in a market (a monopoly), or coordinated among firms.

Market power brings with it a particular danger of

exploitation of the consumer by the supplier. Market failures

may prevent an efficient quality and quantity of product

information from being provided. As with consumer search,

information may be costly to produce and disseminate, such

that at some point the provision of additional information is

no longer desirable from a supplier’s viewpoint (the marginal

cost exceeds the marginal benefit of producing the

information). This implies that the level of information

provision that is optimal for a supplier may differ from the

level of information that is optimal for consumers to obtain.

A supplier with a large degree of market power also may use

information as a strategic variable. Different levels of search

costs may be used to price discriminate between consumers,

charging customers for whom search is expensive a higher

price than customers who are willing to search more.

Suppliers with market power may have an incentive to create

uncertainty by creating product price and quality dispersion

and making information more complex (‘informational

noise’), perhaps through bundling of products together with

add-ons like guarantees or maintenance contracts if it is

difficult to isolate the costs and benefits of particular products.

The exercise of market power may include the provision of

only minimal information to prospective customers without

concern that sales may be diverted to competitors.

Competitors may share the same negative attitude to

consumers and have no interest in countering misleading or

limited information, for example the health hazards of

cigarettes and advertising by cigarette manufacturers.

Consumers may face higher prices and lesser standards of

service than would be the case otherwise under competitive

market conditions. Even in markets where the traditional tests

of market power used by competition authorities would raise

no great concerns, there may still be some ‘informational

market power’. This simply reflects the likelihood that

consumers lack comprehensive knowledge about prices and

quality. If consumers are less than perfectly informed about

the prices charged by other firms (highly likely), a supplier

may be able to increase its prices without losing all

where:

• product characteristics are unobservable prior to purchase

or it would be prohibitively expensive for an individual

consumer to assess the relevant characteristics ;

• products are technically complex and even though

there may be no hidden characteristics interpretation

and evaluation of the available information would

require considerable expertise;

• purchase decisions have effects reaching into the longer

term future, which in turn implies that some degree of

uncertainty is unavoidable so that any decision involves

4 The consumer context

15 For a discussion of supplier information disclosure see Chapter 3 of United Kingdom Office of Fair Trading, Research Paper, No. 11 ‘Consumer

detriment under Conditions of Imperfect Information’.

16 A public good is a good that cannot be supplied to one person without being provided to others, i.e. it is impossible to prevent joint

consumption. As anyone can receive the benefit without paying for it, no one will pay for it and private producers have no incentive to

produce it. The market fails to provide such goods/services (e.g. street lighting, national defence etc.) which a community requires.

17 An externality of consumption is any cost or benefit from consumption that fall on others besides the buyers and sellers of a particular good

or service. Where there are external costs (e.g. passive smoking) not reflected in market price, society incurs a loss due to the costs not met

by the buyers and sellers; where there are external benefits (e.g. immunisation against infectious disease) not reflected in market price, society

incurs a loss through the missed opportunity of not having more of the product.

18 Australian Competition and Consumer Commission, Merger Guidelines, June 1999. Dawson J. in the well-known High Court QWI Case

quoted approvingly the Kaysen and Turner definition of market power: ‘a firm possesses market power when it can behave persistently in a

manner different from the behaviour that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions’.

[Kaysen and Turner (1959), Antitrust Policy, p.75 quoted in Queensland Wire Industries Pty. Ltd. v. The Broken Hill Proprietary Company

Limited & Anor (1989) ATPR 40–925, at 50,015.]

19 It is not necessarily rational for consumers to attempt to obtain all possible information relevant to a particular purchase decision – this depends

in part on the costs of obtaining and processing information which in turn partly depends on supplier behaviour.

4 The consumer context

probability assessments (many types of financial services,

some consumer durables and purchases requiring the

signing of lengthy contracts); and

• combinations of these characteristics occur.

The importance of product and price information to decisionmaking

by consumers has been noted already. The market

mechanism, left to operate unfettered, would often fail to

provide adequate information, such as in relation to products

that are only purchased infrequently, or that are too complex

for the ordinary consumer to knowledgeably evaluate. A

potential consequence of information asymmetry for

consumers, in addition to its impact on their decision-making

effectiveness and bargaining position in transactions, is that

lower quality products may drive higher quality products out

of the market due to (apparent) price advantages.

Alternatively, firms that are able to establish a reputation as

producers of high quality products (supported by marketing

and advertising) may be able to extract a price premium over

the additional costs of producing higher quality. The

outcome of either situation is that overall community welfare

is reduced because quality is lower or prices higher than

would occur without information failures.

The second dimension of consumption is the personal

attributes and circumstances that affect consumption

decisions. Personal attributes and circumstances can impinge

on consumption by affecting:

• the formation of needs to be satisfied;

• whether the information requirements for effective

• access to particular product markets.

Personal attributes and circumstances affect the composition

of the ‘basket’ of products that a consumer purchases in a

particular period and over time. We have noted already that

consumers purchase products for the satisfaction or pleasure

that they provide. What provides satisfaction to a particular

consumer is the result of a web of physiological, psychological

and social variables that influence his or her needs, desires,

tastes and preferences. Consumption occurs within a social

context also. Individual consumers live in households and

communities and belong to ethnic, religious or cultural

groups with various norms of lifestyle and associated

consumption patterns. The mix of products purchased is not

a causal factor in consumer vulnerability or disadvantage, but

it may reflect vulnerability or disadvantage.

Perhaps most importantly for defining consumer vulnerability

and disadvantage, personal attributes and circumstances

affect how a consumer makes purchase decisions and how he

or she is positioned in transactions relative to sellers. Personal

attributes or circumstances that affect access to and effective

use of information are probably most relevant, for example,

those that affect a consumer’s:

• ability to access information about

– a product’s capacity to satisfy his or her needs, its

quality and price,

– prices charged by alternative suppliers, and

– potential substitute products and their prices;

• inclination to seek information relevant to the purchase

decision and to persist where it is insufficient or not

initially forthcoming;

• capacity to understand the information provided by a

supplier or suppliers and to recognise deficiencies such

as likely omissions, exaggerations or deceptions;

• ability to search for information provided by third

parties, meet any associated search costs incurred and

understand the information provided;

• inclination to complain or seek redress in the event that

the expected satisfaction from a particular purchase is

not realised after consumption; and

• capacity to initiate and pursue redress through available

channels.

It is evident these are both supply-side and demand-side

aspects of information requirements. Some relate to the

behaviours of suppliers, others to consumers’ behaviours.

Some personal attributes and circumstances may preclude

access to particular products or price offers or entry to

particular markets, or render access difficult so that transaction

costs, and hence total purchase costs, incurred are higher

than for ‘average’ consumers without those attributes. Some

attributes or circumstances particularly affecting access

include:

• intellectual disability;

• impaired hearing, vision or mobility;

• low income (e.g. inability to access price reductions for

bulk purchases or direct debit payments); and

• remoteness from urban population centres (e.g. related

to access to medical services).

20 Effective purchases are those that result in the consumer fully obtaining the utility he or she expected on entering the purchase transaction

provided the expectations are ‘reasonable’.

Before refining the concepts of vulnerability and disadvantage

by taking into account the pertinent features of consumption

identified in Section 4, it is necessary in relation to

vulnerability to also define ‘injury’ in the consumer context.

An injury in common usage is defined as damage or harm

done to or suffered by a person and a particular form of hurt,

damage or a loss to a consumer. Injury to a consumer could

take many and varied forms, including most obviously:

• physical injury or illness from the purchase and use of a

product that proves unsafe or inappropriate to the

individual’s circumstances or condition; and

• loss of money from a purchase when the product

proves to be objectively unsatisfactory (e.g. a purchased

good does not work) and a refund is not readily

obtainable.

However, beyond such concrete events, there is an area of

grey in relation to what constitutes a loss. For example, can

a consumer suffer harm or loss even when no transaction

and no consumption occur? Is dissatisfaction from a

mismatch of a consumer’s needs with product features and

extend to obtaining lower utility from a purchase within a

budget constraint because :

• another product providing satisfaction of a particular

need equal to that of a product purchased was

available for a lower price; or

• another product providing greater satisfaction of a

particular need for the same or lower price was

available?

Is there a detriment if a consumer pays more to a supplier

than a price readily available from alternative suppliers

because he or she did not bother to ‘shop around’?

Two approaches to defining injury in the literature are

outlined below. The first is a very broad interpretation

without reference to causation. The second is a narrower

interpretation and involves an assessment of causation.

The UK National Consumer Council defines ‘consumer

detriment’ to be ‘any harm or loss suffered by a consumer

during, or as a result of, a transaction, or arising from a denial

definition can be made.

First, it throws no further light on what exactly constitutes a

loss to a consumer. Is a consumer loss constituted by the

actual satisfaction from consumption of a particular product

being less than what was expected by the consumer? If so,

does that hold where a consumer held irrational expectations

about the satisfaction to be obtained from a particular

purchase and does it matter in determining the existence of

5 Consumer injury

21 In legal usage injury has the particular meaning of the infringement of another’s legal rights. Note that the discussion in this section is not

concerned with whether there are any remedies under law for the ‘injuries’ described in this section. The injuries listed are not necessarily

actionable in the courts.

22 ‘Detriment’ is used interchangeably with ‘injury’ in this paper.

23 National Consumer Council (UK), Consumer Disadvantage, Consultation Paper (October 2000), p. 4.

5 Consumer injury

detriment whether the supplier contributed to those

unreasonable expectations by exaggerated claims in its

advertising?

If loss is defined to include a shortfall in the actual benefit

compared to the expected benefit from a purchase no

matter the reasonableness of the expectation, then the

argument is effectively one that a detriment arises anywhere

a consumer’s expectations are not met.

This provides limited practical assistance in policy

development and service delivery for a consumer protection

agency. The imposition of some qualification on expected

consumption benefits through a test of ‘reasonableness’

seems appropriate.

Second, the latter part of the definition – ‘arising from a

denial or absence of transaction’ – raises the question of

whether a consumer can suffer harm or loss even where no

transaction and no consumption occur. Under this

definition, not only are detriments the outcomes of

transaction, they are also denials/absences of transactions.

Thus, a person confined to a wheelchair who cannot enter a

particular shop to buy a product he or she requires because it

is only accessible by stairs presumably suffers a consumer

detriment. That consumer was denied the opportunity to

enter the transaction by the shop operator’s provision of only

limited access. What if there is another supplier of the same

product accessible by wheelchair in an adjacent suburb? Is

the opportunity cost of time (both probably measurable) to

effect a transaction with another supplier whose premises

have wheelchair access?

The economic consulting firm London Economics in a research

paper prepared for the UK Office of Fair Trading (OFT)

defines consumer detriment as ‘the loss to consumers from

elsewhere qualifies ‘loss’ to be a utility loss. This still leaves a

fair degree of uncertainty in interpreting loss. In Section 4

we noted a broadly accepted definition of utility in

microeconomics was that it is the satisfaction an individual

derives from the consumption of goods or services. Thus a

loss would be reduced satisfaction derived from a

consumption decision. Reduced satisfaction relative to what?

Presumably it is relative to what the consumer expected

before he or she entered the purchase transaction. What if a

consumer had not previously consumed that product, made

little effort to obtain information or held uninformed,

exaggerated or irrational expectations about the satisfaction

to be obtained from the consumption of a particular

product?

Again, a qualification that expectations be ‘reasonable’ given

available information seems appropriate. However, this is not

as straightforward as it may seem at first glance.

This interpretation takes into account the cause of loss –

‘from making misinformed or uniformed choices’. A fairly

complex argument underlies the incorporation of causation

in the definition and this is outlined in the following

that it leads to identifying some characteristics of markets

and industries where consumer detriment is likely to occur

and to a set of indicators signalling potentially problematic

markets. This may be of some practical assistance in policy

development and service delivery for a consumer protection

agency. (London Economics’ conclusion on potentially

problematic markets is summarised later in the box in

Section 7

Consumer detriment can be identified as the utility loss

to consumers from making misinformed or uninformed

choices. Not every case of choice made with less than

the maximum information potentially available

constitutes a detrimental choice. In consumption

decision-making the following can be distinguished:

24 Office of Fair Trading (UK), Research Paper No.11, ‘Consumer Detriment under Conditions of Imperfect Information’ prepared by London

Economics, (August 1997), p. 60.

25 The following paragraphs in this sub-section are based on Chapter 4 (pp.59-72) of OFT, Research Paper No.11, ‘Consumer Detriment under

Conditions of Imperfect Information’.

• ‘actual beliefs’ (A), which describe the information the

consumer has when making a purchase;

• ‘rational beliefs’ (R), which describe the information the

consumer would have after having completed a

rational search process and is in effect what the

consumer ought to know at the time of a purchase

• ‘the true distribution’ (T), which describes the best

possible information about the world.

Theoretical detriment, therefore, is measured by the

difference in the utility level (u), or its money equivalent,

that results from consumers making a decision based on

their actual beliefs rather than on the true distribution of

attributes. However, taking the utility level that would

have been achievable had the consumer had the

maximum possible information is unhelpful because it

takes as the standard of reference an idealised outcome

that is simply unachievable in the real world.

Clearly detriment occurs in all cases where consumers

make choices they should not have made if they had had

rational beliefs about the products and services they

purchased. This detriment can be defined as (uR-uA).

Thus, any difference between R and A should give rise to

concerns about consumer detriment. A may differ from

R in cases where suppliers provide misleading

information or where consumers follow some common

behavioural patterns that are not perfectly rational

because of common human limitations, for example

giving excessive emphasis to the recent past.

Detriment should further be identified in cases where

some part of the difference between T and R is avoidable.

It is important to note that not all of the difference uT-uR

represents a consumer detriment (and, hence, total

detriment is not properly captured by uT-uA) because

information may be incomplete (and, thus, R may differ

from T) for good reasons such as, for example, high

search costs. Some part of this difference, however, may

result from the behaviour of suppliers (for example,

search costs may be artificially high due to supplier

behaviour). Any part of the difference (uT-uR) that is

avoidable represents a consumer detriment. The

difference between uT and uR is completely unavoidable

if there is no way to reduce the T– R rational information

shortfall, and, in this case no consumer detriment results

from the divergence between R and T

The rational information shortfall itself does not give rise to

concerns about consumer detriment. Rather it is the extent

to which this rational information shortfall could be reduced

(and, thereby, the extent to which market outcomes could

be improved) that should be addressed as detrimental to

consumers. In other words, the degree to which we judge a

particular action or type of behaviour as detrimental depends

critically on what we can do to remedy (or avoid) it. Without

considering avoidability,

it is not possible to consider detriment. It must

be stressed, however, that avoidability has to be addressed

on the basis of the utility loss from the rational information

shortfall rather than on the size of the gap between R and T.

Avoidability is based on the existence of an alternative set of

institutional arrangements that, if put in place, would reduce

the rational information shortfall. This focus on alternative

institutional arrangements is crucial to any measure of

consumer detriment. In considering alternative institutional

arrangements, one has to take account of the actual beliefs

that would result under this alternative institutional

arrangement. Remedies may affect the speed and

effectiveness with which consumers adapt from possibly

mistaken initial beliefs towards the set of rational beliefs.

Finally, the cost of the remedy must be taken into account.

Even if a specific remedy may lead to a lower difference

between uT and u

R

, this has to be balanced against a

possible loss on the side of producers and the overall cost of

implementing the remedy.

5 Consumer injury

26 R is a key concept and requires a more precise definition: The set of rational beliefs are those pieces of information which a consumer will

hold after weighing up the costs and benefits of search (including the assignation of probabilities to uncertain outcomes) and then searching

to the point where no further benefit can be gained. As such, it is clear that R must be different for each individual, but we can think of a

rational information ‘set’ that is averaged across all consumers, or is based on a representative consumer. In this way, by using the concept

of a ‘rational person’ we can draw a parallel to the use of the ‘reasonable man’ in legal cases. (OFT, Research Paper No.11, ‘Consumer

Detriment under Conditions of Imperfect Information’, p. 9.)3 FTA s.160

5 Consumer injury

Avoidability is highest, thus resulting in the largest potential

for consumer detriment, in cases where:

• a product is perhaps not intrinsically complex but

relevant information is asymmetric and agents

(suppliers or consumers) behave such that these

asymmetries are not removed and uninformed

decisions are made; or

• a product is perhaps not intrinsically complex but

relevant information is asymmetric and there exists

no credible way to transfer information from the

better informed to the less informed party.

The first of these two market circumstances raises

questions about behaviour and, in particular, whether a

specific form of behaviour directly results in some form of

utility loss.

Where a product or service is intrinsically complex or

new, the cost of getting more or better information may

be so high that the rational information shortfall (T – R) is

large. Owing to non-avoidability, this problem may not

result in any detriment at all.

In general, consumer detriment does not result from the

fact that the consumer made a choice which was optimal

at the time it was made (i.e. based on ex ante

information) but which would not have been made on

the basis of ex post information. Rather, consumer

detriment occurs because ex ante information was not

rational (R – A) and/or some part of the rational

information shortfall, defined with regard to ex ante

information, were avoidable.

The next stage is to refine the concepts of vulnerability and

disadvantage by taking into account the pertinent features

of the consumer context identified in the Section 4.

Essentially, consumer vulnerability – susceptibility to

detriment in consumption – arises from the interaction of

market and product characteristics and personal

attributes and circumstances causing poor access to

information and/or ineffective use of information by the

consumer or deterring complaint and the pursuit of

redress. A consumer in this situation faces a high risk of

detriment.

The main market factors creating consumer vulnerability

are:

information asymmetry;

market power;

exploitative supplier motivations; and

complex products/transactions.

The main personal factors creating consumer

vulnerability are those ongoing circumstances listed in

‘Factors in consumer disadvantage’ (right) and temporary

‘life events’, such as the sudden death of an immediate

family member, serious acute illness or retrenchment,

where a consumer faces unavoidable complex and/or

infrequent transactions and/or the consumer’s financial

position is significantly altered without warning. The

emotional trauma associated with such events may affect

the consumer’s capacity for critical assessment of

information and logical decision-making and expose him

or her to manipulation by unscrupulous suppliers.

Diagram 3 on page 15 provides a broad schematic

representation of consumer vulnerability causation.

In terms of the concept of consumer detriment outlined

in Section 5, the personal factors listed below highlight

that consumers are not homogeneous and the extent of

consumer detriment arising from particular market

factors will differ across consumers. The distribution of

individual detriment is central to concerns about

consumer vulnerability. The determinants of consumer

search costs are relevant to distributional issues and the

effectiveness of individuals in processing and evaluating

information is an important determinant (along with the

opportunity cost of time). Many of the factors listed

below affect capability in processing information and the

opportunity cost of time is correlated with income.

6 Vulnerability and disadvantage in the consumer

context

6 Vulnerability and disadvantage in the consumer

context

The generic definition of disadvantage in Section 3 refers

to persisting circumstances or conditions adverse to the

interests of an individual. In relation to ‘consumer

disadvantage’, the next step requires identifying what

particular ongoing circumstances or conditions may be

adverse to the interests of individuals or groups as

consumers. The following personal attributes and

circumstances that are not easily altered are likely to

adversely affect access to and use of information in

market transactions and result in detriment to

consumers:

intellectual disability;

hearing, vision or mobility impairment;

illiteracy;

limited English language proficiency;

low educational attainment (e.g. related to capacity

for critical assessment or comprehension of

complex/technical product qualities, terms and

conditions of transaction etc.);

• gullibility (e.g. related to inclination/ capacity for

critical assessment);

• low confidence in exercising interpersonal skills (e.g.

related to inclination to seek relevant information

and persist if inadequate information is provided

initially);

• low income (e.g. capacity to bear own or third

party information search costs such as fees for

independent financial advice in relation to finance

products);

• remoteness from urban population centres (e.g.

related to access to particular products or

information services); and

• ‘time deprivation’, that is, insufficient time due to

work, family, household or other circumstances to

obtain and absorb information relevant to more

complex purchase decisions (e.g. to understand a

mobile telephone service contract).

The significance of some of these conditions for purchase

decisions will vary according to the complexity of the

product or transaction. For example, limited proficiency

in English may have a negligible effect on everyday

purchases from local shops, but probably will have an

adverse effect on major purchases of complex services

such as legal advice, medical services or financial services.

Market & Product Characteristics eg:

• Information asymmetry

• Market power

• Complex products/transactions

• Exploitative supplier motivations

Individual attributes & circumstances eg:

• Disability – intellectual or physical

• Illiteracy

• Limited English proficiency

• Gullibility

• Remoteness from urban centres

causes...

causes...

creates

A number of further attributes or circumstances indirectly

relating to access to and effective use of information

through their association with the variables above can be

identified. These include:

• youth (e.g. related illiteracy etc.);

• old age (e.g. related to sensory and analytical

capacities, interpersonal skills, mobility etc.);

• non-English speaking background;

• unemployment (e.g. related to low income);

• low educational attainment (e.g. related to

unemployment and capacity for critical assessment of

information); and

• sole parent status (e.g. related to unemployment, low

income and time deprivation).

The income (and wealth) circumstances of a consumer

obviously also affect the composition and quantity of

consumer purchases. Consumption choices are generally

limited by what can be afforded within the consumer’s

budget constraint (although it may not be consciously

formulated as a budget), but does a low income per se

make a person a disadvantaged consumer? It seems

likely that a proportion of low income recipients will be

able to access product and transaction information for

their particular consumption ‘basket’, understand it and

use it effectively to make satisfactory purchases. The

opportunity cost of time is lower for low-income

recipients and, in this sense, information search may be

more ‘affordable’ for low-income consumers.

However, on the other hand, as higher income tends to

be associated with higher educational attainment, highincome

consumers may have greater capacity to process

and evaluate complex product information. Quicker

processing and evaluation may outweigh higher

opportunity costs of time for higher income consumers.

Some kinds of information may not be able to be

accessed and processed without a certain level of

education and transaction experience at all (for example,

perhaps financial services and retirement income

products). If the effectiveness of processing and

evaluating information is an important determinant of

overall search costs, then lower income consumers may

tend to pay higher prices than high-income earners.

Furthermore, the UK National Consumer Council cites

research demonstrating that ‘people with low incomes

not only have less to spend but also face higher costs

The diagram on page 18 contains a ‘matrix of consumer

vulnerability’. Variables in both the market and personal

dimension affect consumer vulnerability. The main

variables are listed down the page in headings in the

matrix table. The main requirements for effective

consumer purchases that relate to information are

summarised in the headings across the page. Where

these requirements are not likely to be met or only

partially met, the potential for vulnerability exists and this

is indicated by the shaded cells in the table. The higher

the likely vulnerability, the darker the shading. No

shading indicates that there is no necessary reason to

consider the information requirements would not be

met. The shadings are indicative only and a range of

arguable views could be held about their

appropriateness. It is important to note that each

market would produce a different pattern of shadings.

Information ‘Availibility and Access’ mainly reflect supplyside

factors; Search and Use reflect demand-side factors.

The matrix concept provides a guide to the potential

consumer vulnerability based on the probability of the

information-related requirements for satisfactory

consumer purchases not being met. For example,

looking across the ‘intellectual disability’ row there is a

dark shaded cell under all nine ‘information requirement’

columns (grouped under the three broad categories of

‘availability’’, ‘search’ and ‘use’). Clearly a consumer with

this personal attribute is generally unlikely to effect

purchases where the identified information requirements

are satisfactorily met. By comparison, looking across the

‘geographical remoteness’ row there is no shading in the

‘inclination to search’ or ‘capacity to understand’

columns. While remoteness may affect a person’s access

to information there is no reason to assume that it

necessarily determines a remote consumer’s inclination to

search for information (although he or she may incur

higher search costs) or his or her ability to understand it

once obtained.

6 Vulnerability and disadvantage in the consumer

context

27 National Consumer Council (UK), Consumer Disadvantage, p. 3 referring to National Consumer Council, Why the Poor Pay More, MacMillan,

1977 and Scottish Consumer Council, Poor and Paying For It, HMSO, 1994.

6 Vulnerability and disadvantage in the consumer

context

Under the ‘market context’ category in the ‘supplier

motivated to exploit’ row, for example, there is no

shading under the columns relating to access to

information on alternative suppliers or substitute

products as such access is outside the control of the

exploitative supplier; nor is there any shading under the

(consumer) ‘capacity to understand’ column, again

because the supplier cannot influence this. The risk of

vulnerability would increase significantly in this particular

market context where there is an interaction with a

gullible consumer.

Vulnerability and disadvantage are often used as though

they were interchangeable. They are clearly inter-related

concepts. Disadvantaged consumers are by definition

vulnerable consumers. The greater the degree of

disadvantage suffered by a person, the more likely the

person’s degree of vulnerability will be greater also. The

more vulnerable a consumer due to personal factors, the

greater the likelihood that he or she will be a

disadvantaged consumer.

While they are related, a distinction can be drawn

between the concepts. Will a person who is vulnerable

in a particular transaction at a particular time necessarily

be a disadvantaged consumer? The generic definition of

disadvantage offered in Section 1 suggests the distinction

rests on the persistence of a specific adverse circumstance

or condition causing vulnerability. An event through

which a person has a reduced capacity to defend against

risk of consumer detriment, such as an acute illness, or

retrenchment, will not necessarily constitute an ongoing

disadvantage.

Disadvantage is more likely to be enduring where it arises

from the innate capabilities of the individual and/or the

distribution of power in a society (and in that sense may

be considered to be ‘structural’). A person subject to

such disadvantages is almost certainly vulnerable as a

consumer. Where vulnerability arises from temporary

circumstance (a ‘life event’ circumstance) but an

individual otherwise suffers no incapacity, the consumer

would not be regarded as disadvantaged as well.

Consumer vulnerability is the broader concept and the

two concepts could be thought of schematically as in

Diagram 4 below.

(a) (b)

nil

high

slight severe

Likely relationship between

consumer disadvantage and

vulnerability

Diagram 5: Matrix of Consumer Vulnerability

Satisfactory purchases' are those that result in the consumer obtaining the utility he or she expected on entering the transaction. Market

variables (i.e. the market context and product/transaction characteristics) and personal variables (i.e. individual attributes and circumstances)

will affect how a consumer makes purchase decisions and how he or she is positioned in transactions relative to sellers. Given the significance of

information to buyers' decision-making and bargaining positions, personal attributes or circumstances that affect access to and effective use of

information are most relevant to the concepts of consumer vulnerability. Major information requirements for effective consumer purchases are

summarised in the horizontal headings in the matrix. Where these requirements are not likely to be met the outcome for the consumer is

problematic and potential for vulnerability exists.

(1) Product qualities & price: Information about a product's capacity to satisfy a consumer's needs, its quality and price is available from

suppliers and a consumer is able to easily access the information.

(2) Alternative suppliers & prices: Information about prices is available from alternative suppliers and the consumer is able to easily access the

information.

(3) Substitute products & prices: The consumer is aware substitute products exist and information about potential substitutes and their prices is

available from suppliers and the consumer is able to easily access the information.

(4) Non-discriminatory provision: Suppliers of the product in question do not provide to certain categories of customers information which is

inferior to or more costly to access than that provided to customers generally (in other words, suppliers do not inform prospective customers

on a discriminatory basis due to their perception of customers' capacities/circumstances).

(5) Inclination to search: The consumer is inclined to seek information relevant to his or her purchase decision.

(6) Capacity to obtain third party provided information: The consumer is inclined to search for product and price information provided by third

parties and can afford third party provider charges.

(7) Ability to understand: The consumer is able to understand the information provided by suppliers, recognise deficiencies such as likely

exaggerations or deceptions and draw reasonable conclusions about the capacity of a particular product to meet his/her needs.

(8) Capacity to complain: The consumer is inclined to complain/seek redress in the event that the expected satisfaction from a particular

purchase is not realised after consumption and there is an avenue for complaint handling provided by the supplier.

(9) Pursue effective redress: The consumer has the capacity to pursue redress through available complaint and dispute resolution processes.

(10) 'Life event' trauma: An event, such as the sudden death of an immediate family member, serious acute illness or retrenchment, where a

complex and/or infrequent purchase is required urgently and/or the consumer's financial position is significantly adversely affected without

notice.

(11) 'Time deprivation': Insufficient time due to work, family, household or other circumstances to access and absorb information relevant to a

particular purchase decision.

6 Vulnerability and disadvantage in the consumer

context

The terms vulnerable or disadvantaged appear in consumer

policy literature, although often without definition. Some

examples of discussion of the terms are provided below.

Where a discussion extends to the causes of vulnerability, it

tends to emphasise consumers’ access to and use of

information.

The United Kingdom Office of Fair Trading (OFT) provided

the following answer to the question ‘What is vulnerability?’

Most of us have felt vulnerable at one time or another

when faced by a new consumer situation. We can recall

not having or not understood the information we felt we

needed and possibly afterwards regretting an illconsidered

decision. We may feel that we have been

positively misled by the information we were given.

Vulnerability to, or detriment suffered from, inadequate

information is relative… Such vulnerability can be

increased by higher search costs as a result, for example,

of a disability that restricts mobility. Often it can be quite

difficult simply to identify where information can be

obtained. Other causes of difficulty may include the

individual consumer’s level of education and general

understanding of financial services. Language and

cultural difference can also impose a barrier to

An earlier consultant’s research paper prepared for OFT in

seven groups of consumers which are commonly assumed to

be vulnerable in some respects, observed:

Consumers may be vulnerable for two reasons. First,

some may have greater difficulty than others in obtaining

or assimilating the information needed to make decisions

about which goods and services, if any, to buy. Second,

they may be exposed to a greater loss of welfare than

other consumers as result of buying inappropriate goods

or services, or failing to buy something when it would be

in their interests to do so. Both forms of vulnerability

28 UK Office of Fair Trading, Vulnerable Consumers and Financial Services: The Report of the Director General’s Inquiry (January 1999), p. 13.

29 UK Office of Fair Trading Research Paper, No. 15 (April 1998), ‘Vulnerable consumer groups: quantification and analysis’ by Ramil Burden, p. 5.

7 Discussion of ‘vulnerable and disadvantaged’ in

other sources

The UK National Consumer Council paper referred to in

Section 3, Consumer Disadvantage, discusses the concepts of

consumer vulnerability and disadvantage. The NCC defines

a vulnerable consumer to be ‘a consumer who possesses a

vulnerability factor relevant to a particular transaction or

transaction opportunity’. A consumer vulnerability factor is

defined as ‘a characteristic of a person that exposes him or

her to consumer detriment in a particular transaction or

The NCC defines consumer disadvantage as a ‘persistent

shortfall in consumer benefits experienced by an individual or

group’ and disadvantaged consumers as ‘people who

repeatedly get below average benefit from the supply of

The NCC also develops the idea of ‘provision deficit’

involving the features of supply of a particular product or

transaction and the consumer’s characteristics (their

vulnerability factors). A provision deficit occurs when there is

a mismatch between the two and this results in a consumer

detriment. In the case of a consumer confined to a

wheelchair the vulnerability factor is his or her limited

physical mobility and the supply feature is lack of wheelchair

access to a particular shop. In the case of a bank customer

with no computer skills and no access to a computer the

vulnerability factor is the incapacity for electronic

transactions, the supply feature is the waiver of fees on

electronic account transactions and the consumer detriment

is higher fees incurred by the customer to operate his or her

account.

A comparative study by the UK Department of Trade and

examination of the extent to which the consumer policy

regimes in the 10 countries surveyed ‘recognised the issue of

protecting vulnerable consumers’. The study’s report

commented indirectly on the meaning of vulnerability as

follows:

Although consumer policies recognised the issue of

protecting vulnerable consumers the team found little in

the way of explicit definitions of who constituted the

vulnerable at a policy level. At one level they have been

defined in terms of case law…; at another it was possible

to find legislation that had been enacted which covered

all consumers but the benefit of which was really aimed

at the vulnerable, for example laws about cooling off

periods for agreements concluded in the home.

Concepts such as unconscionability in US and Australian

law operated to provide greater protection to the

vulnerable. In Denmark the Consumer Ombudsman

aims to protect consumers on the basis of an “average

norm”. This means protecting consumers on the basis of

the experience and knowledge of the average

The report concluded that the types of problems faced by

consumers, including vulnerable consumers, across the

countries were very similar.

These were:

• safety of goods and services;

• purchases of services where asymmetric information

existed with the supplier…;

• competency of service providers

and additionally for vulnerable consumers:

• the ability to understand more complex transactions;

• the difficulty in making rational decisions when

subjected to high pressure sales techniques;

• worries about excessive borrowing/lending; and

30 National Consumer Council (UK), Consumer Disadvantage, Consultation Paper October 2000, p. 4.

31 National Consumer Council, Consumer Disadvantage, 2000, p. 4.

32 Department of Trade and Industry (United Kingdom), Comparative Report on Consumer Policy Regimes, October 2003

(www.dti.gov.uk/ccp/publications.htm), pp.9-10. The countries surveyed were: Australia; Canada; Denmark; France; Germany; Italy; Japan;

The Netherlands; UK; US and the legal framework of the European Union.

33 DTI, Comparative Report on Consumer Policy Regimes, p.10.

34 DTI, Comparative Report on Consumer Policy Regimes, p.9.

7 Discussion of ‘vulnerable and disadvantaged’ in

other sources

7 Discussion of ‘vulnerable and disadvantaged’ in

other sources

The Australian Competition and Consumer Commission

(ACCC), in conjunction with member organisations of its

Consumer Consultative Committee and other consumer and

community organisations, commenced a campaign during

2003 ‘to improve the ACCC’s ability to access trade practices

complaints affecting [disadvantaged and vulnerable]

consumers by encouraging referrals from these

of disadvantaged and vulnerable consumers. However, the

ACCC ‘referral guide’ for these organisations contained a list

of ‘characteristics of disadvantage or vulnerability’:

The main case revealed in a search of Australian cases using

‘disadvantaged’ as a search keyword was the landmark High

responsibility of financial institutions towards third party

transaction in question was not a consumer purchase, it is

noted here because of the discussion of ‘disadvantage’ and

‘disability’ in a transaction and the discussion of disclosure

and unconscionable dealing issues which are often central to

problems of vulnerability.

Deane J. observed that:

The adverse circumstances which may constitute a

special disability for the purpose of the principles relating

to relief against unconscionable dealing may take a wide

variety of forms and are not susceptible to being

Mason J. elaborated on the use of the qualification ‘special’

by stating that it is used:

…in order to disavow any suggestion that the principle

applies whenever there is some difference in the

bargaining power of the parties and in order to

emphasize that the disabling condition or circumstance is

one which seriously affects the ability of the innocent

party to make a judgement as to his own best

Deane and Mason JJ quoted approvingly Fullagar J in Blomley

v Ryan (1956) where he listed examples of ‘circumstances

adversely affecting a party’:

…poverty or need of any kind, sickness, age, sex,

infirmity of body or mind, drunkenness, illiteracy or lack

of education, lack of assistance or explanation where

assistance or explanation is necessary. The common

characteristic seems to be that they have the effect of

placing one party at a serious disadvantage vis-á-vis the

35 ‘Campaign to protect disadvantaged and vulnerable consumers’, ACCC website (www.accc.gov.au/pubs/publications/consumer/Camp.htm)

36 ACCC, Campaign to protect disadvantaged or vulnerable consumers: ACCC Referral guide, 2003, p. 6.

37 Commercial Bank of Australia Ltd v Amadio and Another (1983), 46 ALR 402. Essentially the Court set aside a mortgage guarantee on the

basis that it would not be consistent with equity or good conscience for the bank to enforce a dealing with Mr and Mrs Amadio who were

under a special disability in dealing with the bank (unconscionable dealing).

38 Monahan, P. and Orr, G., ‘Unconscionable Conduct since Amadio’ in The Law Institute Journal, February 2002, p. 55-8.

39 46 ALR 402 at 423.

40 46 ALR 402 at 413

41 99 CLR 362 at 405.

• low income;

• disability

– intellectual

– physical

– sensory

– head injury, stroke,

brain injury

– other eg autism;

• serious or chronic

ill-health;

• non-English speaking

background;

• illiteracy;

• indigenousness;

• homelessness;

• remoteness;

• elderly;

In the specifics of Amadio, Deane J concluded:

…the result of the combination of their age, their limited

grasp of written English, the circumstances in which the

bank presented the document to them for their signature

[in the kitchen of their home for immediate signature]

and, most importantly, their lack of knowledge and

understanding of the contents of the document was

that…they lacked assistance and advice where assistance

and advice were plainly necessary if there were to be any

A noteworthy point here is the implicit emphasis on the

individual’s decision-making capacity in the circumstances of

a particular transaction, as in Mason’s observation that ‘the

disabling condition or circumstance is one which seriously

affects the ability of the innocent party to make a judgement’

and Deane’s observation that ‘they lacked assistance and

advice where assistance and advice were plainly necessary if

there were to be any degree of equality’.

7 Discussion of ‘vulnerable and disadvantaged’ in other sources

42 46 ALR 402 at 425.

8 Proposed definitions

Drawing on the preceding discussions the following draft

definitions are provided for comment. Reflecting the

previous sections, the central theme of the definition relates

to issues in the access to and use of information.

Consumer vulnerability is exposure to a risk of detriment in

consumption due to the interaction of market, product and

supply characteristics and personal attributes and

circumstances. The main cause of vulnerability is this

interaction resulting in inadequate information, poor access

to information and/or ineffective use of information by a

consumer or in the deterrence of complaint or the pursuit of

redress by a consumer.

Consumer detriment includes, in addition to physical harm

and monetary loss, a level of satisfaction less than was

reasonably expected from a purchase and the denial of a

transaction sought by a consumer.

A vulnerable consumer is a person who is capable of readily

or quickly suffering detriment in the process of consumption.

A susceptibility to detriment may arise from either the

characteristics of the market for a particular product, the

product’s qualities or the nature of the transaction; or the

individual’s attributes or circumstances which adversely affect

consumption decision-making or the pursuit of redress for

any detriment suffered; or a combination of these.

Consumer disadvantage is a persisting susceptibility to

detriment in consumption. A disadvantaged consumer is a

person in persistent circumstances and/or with ongoing

attributes that adversely affect consumption thereby causing

a continuing susceptibility to detriment in consumption. As a

result, a disadvantaged consumer repeatedly suffers

consumer detriments or, alternatively expressed, generally

obtains below-average satisfaction from consumption.

Not all vulnerable consumers are disadvantaged consumers.

Some consumers will be vulnerable only because of either

temporary personal circumstances that adversely affect them

in consumption; or adverse market, product or transaction

characteristics specific to a particular purchase, rather than

their purchases generally. Consumer vulnerability is the

broader concept, but both are relative and dynamic

concepts.

9 Some implications for further work

It was suggested at the beginning of this paper that a

common understanding of terms could assist in the

subsequent design, delivery and evaluation of CAV’s

programs and products and improvements in consumer

protection by more targeted service delivery. Two main sets

of implications arise:

1) in practice how does CAV identify problematic

markets, products or transactions or who are

vulnerable consumers or disadvantaged consumers; and

2) how can CAV most effectively assist consumers who

are vulnerable or disadvantaged?

The second set of implications is beyond this paper, but some

observations are offered regarding the first.

Work has been done within CAV (and its predecessor CBAV)

around some of these issues. The working definition

developed in earlier projects was largely based on the

variables included in the ABS’s Socio-Economic Indexes for

household characteristics included in the SEIFA (e.g. families

with annual incomes less than $15,600, households renting

from a government authority etc.). This is reasonable as they

are proxy indicators of some potentially adverse consumer

circumstances relevant to vulnerability and disadvantage.

The purpose of this earlier work was not to explore the

causes of vulnerability.

However, this provides only part of the picture in two

respects:

• it is limited in its coverage of personal attributes and

circumstances, for example the SEIFA-based socioeconomic

analysis of postcodes that is used to measure

access to CAV’s services does not cover variables such

as intellectual or physical disabilities ; and

• it does not encompass the market dimension of

consumer vulnerability.

In terms of the various personal vulnerability factors, the list in

Section 1, (‘Disadvantage’) is a starting point and the focus

on their affects on the accessibility and use of information

provides an integrating analytical thread. Further refinement

of the personal factors requires further engagement with:

• individuals experiencing these factors and their

representative organisations;

• businesses supplying goods and services (particularly

essential products such as utility services) to people in

these circumstances; and

• government agencies involved in policy development

and service delivery to the relevant categories of

individuals.

An obvious difficulty in addressing consumer vulnerability

and helping disadvantaged consumers is that the same

43 See for example ABS, Information Paper: 1996 Census of Population and Housing Socio-Economic Indexes for Areas, Catalogue no. 2039.0

(October 1998).

9 Some implications for further work

personal variables that contribute to vulnerability and

disadvantage also adversely impact on the likelihood of

consumers who have suffered detriment complaining to CAV

or seeking CAV’s assistance. Engaging effectively with

individual consumers and groups of consumers who are the

most vulnerable is an ongoing challenge for CAV.

Consumers with normal capacities and in ordinary personal

circumstances may still be vulnerable, due mainly to

information problems related to the characteristics of a

particular market, product and/or transaction. A significant

implication to draw from the discussion in this paper is that

the market context needs to be incorporated more into

CAV’s consideration of vulnerability and disadvantage. This

requires more research into and understanding of

information problems and includes aspects of the structure of

particular markets, market behaviours, the nature of products

and the characteristics of particular transactions. A

conceptual framework is necessary to guide research and

policy development efforts if concern about consumer

vulnerability and disadvantage is to be translated into

effective assistance. An information-based framework

focusing on the quality and cost of consumer information

seems likely to be most productive.

An illustration of where such a framework may lead, without

elaborating on the analytical steps or the policy issues, is

provided in the Box on the next page. This sets out a set of

‘indicators’ of ‘problematic markets’ where concerns about

consumer detriment might arise. Some of these have been

noted already in the discussion in Section 4. The Table

applies these indicators to a number of goods and services.

These examples are in the context of the United Kingdom of

course and are provided here as illustrative of the use of an

information-based approach to identifying consumer

protection concerns. These do not represent CAV’s

assessment of the corresponding markets in Victoria.

However, consumer problems have arisen in relation to some

of those listed in the table, for example funerals, cars,

building services, mobile phones, life insurance. Some of

those listed are subject to jurisdiction of regulatory agencies

other than CAV, for example life insurance and pensions.

Greater incorporation of market factors into developing

policy on vulnerable consumers requires research on the

characteristics of particular markets and monitoring of

‘emerging developments’ in particular markets, particularly

with an eye to potential informational problems. This, in

turn, requires engagement with businesses in relevant

markets to better understand suppliers’ behaviours that may raise consumer detriment issues.

Trebilcock refers to:

the special importance of devising early warning systems

to alert policy-makers to potential problems in their

incipiency so that pre-emptive action is facilitated.

Timeliness is a prerequisite of effective government

action. Markets are likely to solve most information

problems, given time, although many consumers may be

prejudiced in the meantime. A central issue thus whether

9 Some implications for further work

This suggests that consumers do not engage in sufficient search

and do not effectively compare prices. An assessment will need

to consider the degree of homogeneity. Few markets contain

homogenous goods, so the issue is one of degree. Does the

price dispersion represent any objective difference between the

goods and services on offer? How large is the price dispersion

relative to estimated search costs? If search costs appear to be

low, price dispersion may exist for other reasons.

Focal points of competition (e.g. cost-per-copy price in the

photocopier market) indicate that the market is characterised

by informational problems for which the creation of focal

points is a solution. Is the particular focal point of competition

that can be observed in a market or industry likely to result in a

rational information shortfall that is larger than it would be with

a different focal point? This would give rise to an avoidable T-R

gap and, consequently, consumer detriment.

Focal points of competition may be of particular importance

where the consumers decide on bundles of primary and

secondary purchases or where the initial purchase decision

creates demand in an after-market. If the focus of competition

is not on the true lifetime cost of the equipment, this may

result in misguided consumer decisions and, consequently,

consumer detriment. The existence of an after-market may be

technologically determined. The need to use compatible spare

parts and, to a lesser extent, consumables results in a lock-in of customers.

The use of commission incentives, by any player in the value

chain, may force a divergence between the incentives of sales

people and consumers. The resulting problems include:

• consumers purchasing products or services that are not

appropriate to their needs;

• consumers paying more than necessary for a given product

or service; and

• products being of a lower quality than the consumer had

been led to believe.

Commission payments paid by upstream firms to sales people

or advisers, to encourage the sale of a specific product or

service, are likely to be most damaging to consumers.

Goods or services that are intrinsically complex (health services

or electronic products, for example) present potential

information problems for consumers. If consumers cannot

understand the nature of the purchase they are making there

may be scope for suppliers to exploit this ignorance though

high prices or low quality. Not all complex product markets

suffer from these problems. If branding, supplier credibility or

the efficient use of focal points are employed, the market may

solve any informational problems.

Consumers can usually learn more from actually buying and

using the product or service than from any other source.

However, if these mechanisms do not operate well (because the

consumer cannot judge quality even after purchase – credence

goods), or are of little value (because the consumer is unlikely

to make a similar purchase again for some time), learning is

hindered and informational problems are likely to occur. Any

good or service which is purchased infrequently can result in

these problems, not just expensive consumer durables.

Source: Office of Fair Trading (UK), Research Paper No. 11, ‘Consumer Detriment under Conditions of Imperfect Information’ prepared by

London Economics, (August 1997)

References

Catalogue no. 2039.0 (October 1998).

(1983), 46 Australian Law Reports 402.

of Toronto Roundtable on New Approaches to Consumer

Law, June 1996.

Monahan, P. and Orr, G., ‘Unconscionable Conduct since

Amadio’ in The Law Institute Journal, February 2002.

Pindyck, R. S. and Rubinfeld, D. L., Microeconomics,

Macmillan, New York, 1989.

Trebilcock, M. ‘Re-thinking Consumer Protection Policy’ in

Consumer Education in Schools: Background Paper

United Kingdom Office of Fair Trading,

Research Paper, No. 11, ‘Consumer detriment under

conditions of imperfect information’ prepared by London

Economics, August 1997).

United Kingdom Office of Fair Trading,

Research Paper, No. 15, ‘Vulnerable consumer groups:

quantification and analysis’ by Ramil Burden (April 1998).

United Kingdom Department of Trade and Industry,

Comparative Report on Consumer Policy Regimes, (October

2003).

(E/CN.5/1998/5).

1300 55 81 81 (local call charge)

Website www.consumer.vic.gov.au

March 2004

C-10-01-771