News Release

Legalize Form Of Bait And Switch, Say Professors; Consumer Taboo Is Debated In Scholarly Journal

Peer-Reviewed Publication

Institute for Operations Research and the Management Sciences

LINTHICUM, MD, February 8 - A form of bait and switch, considered anathema to consumers, would actually benefit purchasers and should be legalized, according to one side in a scholarly debate published in a journal of the Institute for Operations Research and the Management Sciences (INFORMS®).

The authors argue for legalization of one aspect of bait and switch, the deliberate use of stock outages of a featured, low-price bait brand in hope of persuading customers to switch to a more profitable substitute brand. They maintain that this form of bait and switch actually benefits consumers, specifically those who choose a superior product after discovering that a sales item is unavailable.

In defending an earlier article they had written, James D. Hess of the University of Illinois, Champaign, and Eitan Gerstner, University of California-Davis, write that the competitive nature of retailing is often the only protection consumers need from the evils of bait and switch. Their arguments are based on operations research and management science models that they developed.

The response is entitled, "Yes, 'Bait and Switch' Really Benefits Consumers" and appears along with challenging articles in the current issue of Marketing Science (Vol. 17 Nol.3).

Bait and Switch Gives Consumers Added Value
In their original study (Marketing Science, Vol. 9, No. 2), the authors described the assumptions of their math model, writing, "In contrast to assumptions that consumers are naïve--we will assume that consumers foresee stock outages of feature brands. We also assume that in-store promotions such as demonstrations and customer education can be made customer and brand specific and can create permanent utility because they help customers differentiate between brands and better fit colors, shapes, capabilities, etc., to their tastes."

The authors explain the checks on stores. "Despite the monopoly power retailers have when customers visit their stores," they write, "the price of in-store-promoted brands cannot be raised too much or customers who face stock outages will buy the featured brand with a rain check. The competitive process of bait and switch drives the price of featured brands to very low levels. The process also stimulates in-store promotions of other brands. Although the in-store promotions are biased toward substitute brands--they can still benefit consumers (compared to a situation in which in-store promotions are not available at all). These benefits can exceed the costs incurred from using rain checks."

As an example, one author cited a personal anecdote: He went to a store to buy a PC he saw advertised. It was out of stock, but when a salesman told him a faster model was available for an additional $100, he purchased it because it was available immediately and because the faster machine better served his needs.

"The FTC should investigate further its ban on bait and switch because this marketing practice can promote economic efficiency," they say.

Keep Current Policy, Opponents Urge
The current edition of Marketing Science, an INFORMS publication, includes articles contesting Gerstner and Hess's initial research and calling for a continuation of Federal Trade Commission and court oversight of all forms of bait and switch.

"The ramifications of both our legal and modeling analyses are that deceptive bait-and-switch practices result in harm to consumers and should not be legalized," write William L. Wilkie, Carl F. Mela, and Gregory T. Gundlach of the University of Notre Dame.

The opponents maintain that the defense of bait and switch fails to address a wide number of markedly fraudulent practices that come under this heading. Noting court opinions in several cases, they enumerate important aspects of bait and switch faulted by the courts: coordinated actions to gain sales through deception; huge increases in actual prices paid ranging from two to nine times the price featured in the bait ad; customers who are poor, uneducated, and susceptible to "hard-sell techniques;" ads promising easy credit that encourage sales of higher-price substitutes - but lead to questionable debt collection practices; and post-sale actions of sellers that often reveal a contempt for customers.

Wilkie, Mela, and Gundlach further contest one of the assumptions underlying the math model promoting bait and switch. Their analysis shows that it is not the bait advertising itself that is responsible for the benefit described; instead, it is the value of sales people who explain the benefits of different products to customers, and this practice is not viewed to be illegal by the government. In the original study, Gerstner and Hess agreed that false or exaggerated store promotions that blind consumers to the merits of the substitute brand hurt consumers, but said that competition would likely reduce this fraudulent practice.

Both sets of authors state their opposition to fraud and maintain that the issue can only be considered where there is retailer competition rather than monopoly. The articles by Wilkie, Mela, and Gundlach are entitled, "Does 'Bait and Switch' Really Benefit Consumers?" and "Does 'Bait and Switch' Really Benefit Consumers? Advancing the Discussion?"

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The Institute for Operations Research and the Management Sciences (INFORMS®) is an international scientific society with 12,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications.



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