Consumer Behavior and
Disclosure in Online Contracts
Florencia Marotta-Wurgler
New York University School of Law
Conference on Behavioral Industrial Organization and
Consumer Protection, UCL
October 18, 2014
Internet Commerce

Significant and growing every year


$75 billion for second quarter of 2014 in US (15%
increase from 2013)
Most consumer transactions and services online
(and off) are governed by fine print

EULAs, TOU, Privacy Policies, TOS
• Clickwraps, browsewraps

What happens if nobody reads it?
Some Evidence

Few people read standard form contracts

Increasing disclosure barely changes the rate of
readership

Even requiring assent fails to draw attention to
SFC terms

Contracts are complex and change frequently,
further complicating assent
Few people read SFCs

Bakos, Marotta-Wurgler & Trossen (2014) look for an
“informed minority” in a real market



Idea is that if enough readers are sensitive to terms, competition
forces sellers to offer reasonable ones
Often assumed, invoked by courts, but never tested
Market is online shopping for software


EULAs are quintessential modern form contracts
Comparison shopping is easy online—if informed minority exists,
should be here
Visitor types
Informed Minority =
Fraction of visitors
Shopperssewho
read
1b1  se
1 (1  b1 )
se b
se1b1 All
se1 (shoppers
1  b1 )  s1(11  e1 )b2  s (1  e1 )(1  b2 )

se1(1 b1)

s(1 e1)b2

s(1 e1)(1 b2 )


(1 s)e2
(1 s)(1 e2 )
Data

All visits by 40,091 households to 66 software
companies for one month





56 retail; 10 freeware; with non-“forced” EULAs
Visits defined as series of URLs and time on each
Demographic information for each household
Contract, firm, and product information
“Readers” are those who click on EULA page and
stay for at least one second
EULA Access: Results
Panel B. At Least 5 Pages Accessed During Visit
Co.
N of
co.
visits
Mean
N of
pg.
clicks
per co.
visit
(s.d.)
Med.
N of
pg.
clicks
per co.
visit
Mean
length
of co.
visit in
secs
(s.d.)
Med.
length
of co.
visit in
secs
N of
EULA
visits
(% of
co.
visits)
Mean
N of
pg.
viewed
before
EULA
access
(s.d)
Med.
Length
of
EULA
access
in secs
Retail
40,697
35.3
(96.9)
14
837
(2,562)
292
49
(.12%)
23.1
(44.4)
29
Freeware
5,370
70.6
(416.5)
11
741.5
(3,993)
148
34
(.63%)
13.2
(24.1)
25
How many shoppers read EULAs?

49/40,697 = 0.12%


At most 6/3,534 = 0.17%
Is 1 in 1000 enough to create an IM?


How could real firms even know they’re losing 0.12% of
customers (which assumes every single reader walks
away)?
Back of envelope calculation (see paper) suggests that
MC of good M&S terms is at least 100x greater than MB
Does disclosure help?

More disclosure = more readership?


Again, surprisingly little evidence yet
Marotta-Wurgler (2011; 2012) measures
readership as a function of disclosure

Check whether shoppers click on (“read”) the EULA
at a higher rate when EULA is more prominently
disclosed
Data

Similar sample to Bakos et al.

For each company website, we measure EULA
accessibility



# of clicks from “natural path to purchase”
Ranges from 0 to 6
0; 0.5 is a clickwrap, >0.5 is a browsewrap
Accessibility and readership
Contract
accessibil
ity (in
clicks
from
path of
purchase)
N of
company
visits
N of
EULA
visits
(% of
company
visits)
Mean N
of pg.
clicks per
company
visit
(s.d.)
Median N
of pg.
clicks per
company
visit
Mean
length of
EULA
access in
seconds
(s.d.)
Median
length of
EULA
access in
seconds
Panel B. At Least 5 Pages Accessed During Visit
1
7,093
2
4,645
3
27,454
4
1,220
5
-
6
285
23
(0.32)
1
(0.02)
12
(0.04)
0
(0)
-
19.1
(58.1)
37.5
(72.8)
40.4
(109.6)
12.2
(22.9)
-
0
(0)
9.8
(9.1)
9
7
44.6
(39.1)
44
(0)
60.1
(58.0)
-
-
-
-
7
-
-
15
17
29
44
35.5
-
Clickwraps v. Browsewraps

When EULAs are made more accessible, they
are indeed several times more likely to be read



But even with very prominent disclosure, readership
remains less than 0.5%
One out of every 200 shoppers even glances at the EULA, let
alone understands it, or reacts to it
Results are robust
People Don’t Read Clickwraps, Either

0.23% click on hyperlinks of EULAs that they are
forced to acknowledge exist, but require an extra
click to see

Median time spend on checkout pages with text
box EULAs is at most 94 seconds

Bottom line: Even with required assent, almost
nobody reads fine print

And .23% still not enough to constitute an IM (20%)
Assent and Modification
 Do

contracts change over time?
Sub-sample of EULAs from 264 firms, 2003 and 2010
(Marotta-Wurgler & Taylor 2013)

For each EULA, we measure in 2003 and 2010



# of words
Flesch-Kinkaid readability scores
Relative Pro-Seller/Pro-Buyer bias for 32 terms
Findings
 39%
had at least one material change
 Contracts



got longer
1,517 words in 2003
1,938 words in 2010
Remain hard to read: FK Score= 33
• Consumers are being asked to read a long contract that has
the same readability score as a scientific journal article
 On
average, change favored sellers
Another Example: Privacy Policies

248 PPs from six different markets (Marotta-Wurgler
2014)


Graded on 69 dimensions; weekly snapshots (2009-2013)
On contract changes:


“Change of Terms” clauses appear 86% of time, and only
9% will email users informing such changes
Only 10% will ask for explicit assent to new term
Do PPs Change Over Time?

59% had at least one material change



Some changed frequently, up to 30 times since 2009
On average, there are about 2 changes a year (with increasing
frequency)
Can PPs be easily understood? (more in paper)

Seems unlikely. Most include vague and contradictory terms
 97% condition statements with “may,” “might” (~20 avg.)
 Words such as “affiliates.” “third parties” defined only 7% of times
 64% include words such as “occasionally.” “from time to ime” (~2 avg.)
Conclusion

Requiring disclosure seems sensible, but unlikely to
make any difference (at least in software market online)




Hardly anyone reads EULAs, regardless of disclosure
For consumers, what is costly is reading, not access
Even if consumers (or experts) read, unclear they would understand
 Constantly changing
 Complexity, length, internal contradictions
For policy, now what?




Tinker with disclosures (“smart,” “just in time”)
Minimum standards?
Default rules (in privacy)?
Do Nothing?