The impact of the removal of substances on manufacturers can be great. For example Red Die No. 40 is now being reevaluated. Currently over 1.5 million pounds of the substance are being used annually. In summary, the FDA has increased its standards on determining the safety of food additives. This has reduced the number of new additives entering the market. In addition, the FDA's decision to review all GRAS ingredients has increased the manufacturers' uncertainty level about the future status of ingredients once thought to be safe from ever being banned. Clearly it is necessary for the FDA to remove substances which are found to be harmful. However, as tech nological advances increase our ability to analyze food substances, consideration must be given to decisions which could have major economic impact on the producer (and consequently the consumer) but have little immediate effect on consumer safety. In general, we concur with the FDA's decisions to allow firms to sell off inventory supplies of substances when a former GRAS or approved additive is removed from the market. Even though there is some risk to consumers, it is hard to imagine that additives which have been used for extended periods of time pose an immediate threat to consumer safety. Consequently every effort should be made to attain a smooth transition from the use of the banned product. REGULATORY MECHANISM OF THE FEDERAL TRADE COMMISSION Established under the Federal Trade Commission Act of 1914, the Federal Trade Commission (FTC) is an independent administrative agency headed by five members appointed by the President with the advice and consent of the Senate. The chairman of the commission is designated by the President and is responsible for its administrative management. The basic mandate of the FTC is "to prevent the free enterprise system from being stifled or fettered by monopoly or corrupted by unfair or deceptive trade practices." 1 This mandate is extremely broad and thus potentially touches on most aspects of the food industry. However, the one area which has recently received attention and which could have significant impact on the food industry is the FTC's interest in deceptive advertising, especially with respect to nutrition. In discussing the FTC we will concern ourselves primarily with this one activity of the agency, which happens to reside under the Bureau of Consumer Protection.ia FTC ENFORCEMENT PROCEDURES A basic goal of the FTC is to prevent unfair or deceptive trade practices. The agency's major enforcement procedure has centered until recently on the "cease and desist" order. A cease and desist order begins with an informal complaint that may originate with a consumer, competitor, or any government agency, including the FTC itself. After an initial investigation the FTC has three options: drop the matter, attempt to obtain an informal settlement based on the respondent's assurance that it will terminate the illegal practice, or issue a formal "complaint." 2 Normally, if it is decided to pursue the matter further, the party concerned is served with a notice to that effect, along with the particulars of the proposed FTC action. At this point the respondent may decide to settle the matter out of court by signing a consent order. These orders have the force of law. In the event that no such settlement can be reached, a formal complaint is issued and a public hearing is held at which testimony with respect to the practices alleged in the complaint is presented before an administrative law judge (who is an employee of the FTC).2a Subsequent to the hearing, an initial decision is issued by the judge. If the decision is not to drop the case, the order to cease and desist be 1 U.S. Government Organization Manual 1971/72 (Washington, D.C. General Services Administration 1972) p. 439. 1a The other major FTC bureau is the Bureau of Competition. The major current activity of this bureau which has direct impact on the food industry is an antitrust case dealing with the cereal companies. This complaint was originally filed in January 1972. We do not discuss this case since it pertains to only one product class within the food industry. Workloads reported by Nystrom (1975) indicate that only 1 out of 25 applications for complaint were actually processed into a formal complaint. 2a Conversations with persons who have observed this procedure indicate that the judicial branch of the FTC is well insulated and separated from the rest of the agency. markets. These standards, which under the Magnuson-Moss statute have the force of law, are referred to as trade regulation rules (TRR's). We discuss these two basic approaches throughout this section. The effects of advertising Since we will be discussing the FTC and its actions with respect to advertising we find it necessary first to spend a little time discussing advertising's ability to affect consumer behavior. Only then can the impact of the FTC on consumer protection be discussed intelligently. Of all the aspects of the seller-consumer relationship, there is nothing that invites as much controversy or criticism as advertising. Advertising is pervasive, impinging on the sense of consumers hundreds of times daily. Given the sheer scale of advertising in this country, it is difficult to escape its influence. (For example in 1973, advertisers spent approximately $23 billion in the measured media alone. Of this amount, the preponderance went for consumer advertisings. The figure for the food industry is estimated to be $800 million.") Even though consumers are bombarded by advertising there is considerable evidence to support the idea that consumers often seek out and find useful the information provided in the advertisements. For example, advertising provides information on the availability of new products, tells the consumer about features which might be useful in helping to make purchase comparisons, and often displays the specific price. Consequently most consumers would rather have advertising than be without it. However, there is a strong undercurrent of negative feeling toward advertising. Essentially, criticisms of advertising fall into three broad categories. The first is that advertising is manipulative in that it persuades people to buy products that they do not want or need. The second criticism is that much advertising is deceptive and misleading. Finally, some consumers complain that instead of providing them with relevant product attribute information, advertisements are boring, repetitive, and insulting to their intelligence. It is clear that the FTC in its role of consumer protection should attempt to regulate advertisers that use deceptive advertisements. However there is some question whether the agency should also be concerned with allegations that advertisements are (a) manipulative and (b) do not provide consumers with product information needed to make sensible product choices. In discussing this question a number of facts should be remembered with respect to the effects of advertising on consumer behavior. First, advertising is certainly not the only source of information about the product. Moreover consumers can choose to view specific messages and subjectively determine the meaning of those messages. Also there is some empirical evidence that for many product classes, advertising has little influence in the decision making process once the consumer actively considers purchasing a product. Consequently advertising seems to be most effective in getting consumers to be aware of a particular brand and to consider the brand relative to other brands. However, once the product is in the consumer's choice set, other forms of information are used to make the final choice decision. The fact that FR 39858 (1974). * See Staelin and Payne (1976) and Newman and Staelin (1973). measurement for the FTC's activities in deceptive advertising such as "the level of deceptive practices" or "the impact of deception on consumers." This lack of a base-line makes it hard to evaluate specific proposals. Moreover, in most instances, there seems to be little empirical evidence of the impact of the FTC's actions on consumer behavior. For example one of the benefits associated with the proposed TRR for nutritional advertising is a reduction in malnutrition which will result from an upgrading of the U.S. public's eating habits. In order to measure the benefit of this TRR it is necessary to determine the link between more nutritional information and a change in consumer behavior. The reader should be aware of our utilitarian emphasis on changes in behavior as the measure of impact of a consumer protection agency. This emphasis differs from the more legalistic point of view which defines a regulatory agency's mission to provide the consumer with material information without a major concern for its use. For example, the legal theory for the nutrition TRR rests on the following argument. Nutritional information is material product information which is now being denied consumers and this practice is deceptive. In the case of the TRR for nutritional advertising, materiality is "proven" by showing that the problem of malnutrition exists and that nutritional information might help alleviate this problem. In other words there is no assumption that the information will change behavior, only that the information is comprehensible to consumers (and thus material). Without sounding too repetitious we would like to point out again that we believe information has value (translate, material) only if it alters a person's behavior. Consequently we use the extent to which information changes behavior as our measure of impact." In summary, there is little empirical evidence as to the direct (or indirect) benefits which accrue to the consumer as a result of the actions of the FTC in regulating the advertising of the food industry. Since this information is not available we must rely on studies which provide general theoretical foundations relevant to our discussions of the impact of specific FTC programs. These studies fall into two broad areas, (a) those which use an experimental design aimed at measuring the impact of a particular program and (b) those which attempt to understand how consumers process information (often referred to as consumer information processing or CIP research). It should be noted that the above description can be classified as a case-by-case approach to regulation. Recently the agency has indicated that it plans to substantially modify this basic approach. Instead of setting policy one case at a time, they now envision setting specific rules (standards) which will apply to whole industries, products or A similar viewpoint was expressed by numerous Senate witnesses [Committee on Commerce, Federal Trade Commission Oversight (1974)], although they were referring to the economic value of the FTC's efforts with respect to anticompetitive actions. For example. Paul Scanlon, Associated Editor for the Antitrust Law and Economics Review said "Since the FTC is an economic agency, there is only one way to measure its performance: How many dollars did it save the public last year?" 5 According to testimony by Paul Scanlon (see footnote 5) among others, only twice has the FTC provided documentation on the benefits to the consumer of their actions. Both situations involved price fixing. We certainly are not alone in this respect. The whole discipline of Decision Theory defines the value of information in exactly the way we have. (See for example, Raiffa's book "Decision Analysis," Addison Wesley, 1971.) Consequently we feel that it is not enough for a consumer to have "the right to know", the consumer must also use the information in making a decision. markets. These standards, which under the Magnuson-Moss statute have the force of law, are referred to as trade regulation rules (TRR's). We discuss these two basic approaches throughout this section. The effects of advertising Since we will be discussing the FTC and its actions with respect to advertising we find it necessary first to spend a little time discussing advertising's ability to affect consumer behavior. Only then can the impact of the FTC on consumer protection be discussed intelligently. Of all the aspects of the seller-consumer relationship, there is nothing that invites as much controversy or criticism as advertising. Advertising is pervasive, impinging on the sense of consumers hundreds of times daily. Given the sheer scale of advertising in this country, it is difficult to escape its influence. (For example in 1973, advertisers spent approximately $23 billion in the measured media alone. Of this amount, the preponderance went for consumer advertisings. The figure for the food industry is estimated to be $800 million.") Even though consumers are bombarded by advertising there is considerable evidence to support the idea that consumers often seek out and find useful the information provided in the advertisements. For example, advertising provides information on the availability of new products, tells the consumer about features which might be useful in helping to make purchase comparisons, and often displays the specific price. Consequently most consumers would rather have advertising than be without it. However, there is a strong undercurrent of negative feeling toward advertising. Essentially, criticisms of advertising fall into three broad categories. The first is that advertising is manipulative in that it persuades people to buy products that they do not want or need. The second criticism is that much advertising is deceptive and misleading. Finally, some consumers complain that instead of providing them with relevant product attribute information, advertisements are boring, repetitive, and insulting to their intelligence. It is clear that the FTC in its role of consumer protection should attempt to regulate advertisers that use deceptive advertisements. However there is some question whether the agency should also be concerned with allegations that advertisements are (a) manipulative and (b) do not provide consumers with product information needed to make sensible product choices. In discussing this question a number of facts should be remembered with respect to the effects of advertising on consumer behavior. First, advertising is certainly not the only source of information about the product. Moreover consumers can choose to view specific messages and subjectively determine the meaning of those messages. Also there is some empirical evidence that for many product classes, advertising has little influence in the decision making process once the consumer actively considers purchasing a product. Consequently advertising seems to be most effective in getting consumers to be aware of a particular brand and to consider the brand relative to other brands. However, once the product is in the consumer's choice set, other forms of information are used to make the final choice decision. The fact that 1 FR 39858 (1974). See Staelin and Payne (1976) and Newman and Staelin (1973). |