Abstract
This paper examines the consequences of some remedies for non-conforming
goods in online marketplaces, particularly in light of the European Union’s
Sale of Goods Directive (2019/771). We develop a model of vertical differentiation
where consumer heterogeneity arises from differences in legal
enforcement costs. Consumers face uncertainty about product quality and
rely on seller-provided signals such as branding, reviews, and refund policies.
Once a product is received, their decision to seek redress depends on
individual enforcement costs, the level of the applicable substantive remedy,
and legal accessibility to the remedies. We show that, counterintuitively,
under some conditions stronger legal enforcement and higher remedies increase
demand for lower-quality sellers, reshaping competitive dynamics in
online markets.
goods in online marketplaces, particularly in light of the European Union’s
Sale of Goods Directive (2019/771). We develop a model of vertical differentiation
where consumer heterogeneity arises from differences in legal
enforcement costs. Consumers face uncertainty about product quality and
rely on seller-provided signals such as branding, reviews, and refund policies.
Once a product is received, their decision to seek redress depends on
individual enforcement costs, the level of the applicable substantive remedy,
and legal accessibility to the remedies. We show that, counterintuitively,
under some conditions stronger legal enforcement and higher remedies increase
demand for lower-quality sellers, reshaping competitive dynamics in
online markets.