1. 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

2. 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?

3. 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 3

4. 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 I

5. Empirical Framework Shoppers who read Informed Minority = All shoppers
The informed minority will be the fraction of shoppers who read to all shoppers

6. 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

7. EULA Access: Results 7

8. 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 8

9. 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

10. 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

11. Accessibility and readership

12. 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

15. 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%)

16. 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

17. 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

18. Another Example: Privacy Policies
248 PPs from six different markets (Marotta-Wurgler 2014)
Graded on 69 dimensions; weekly snapshots ( )
On contract changes:
“Change of Terms” clauses appear 86% of time, and only 9% will users informing such changes
Only 10% will ask for explicit assent to new term

19. 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.)

20. 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? W