Consumer Protection (Mediation) Regulations, 2020: Alleviating Bargaining Power Disparities in Mediation through a Game-Theory Approach

– Sukarm Sharma

I. INTRODUCTION

This paper seeks to analyze the Consumer Protection (Mediation) Regulations, 2020 (hereinafter referred to as ‘Regulations’) to suggest a mediation process that alleviates the bargaining power disparity in consumer disputes’ mediation. It does so by proposing a modified mediation process that emphasizes the long-term implications of the mediated settlement over the immediate implications to the party with the higher bargaining power, in order to disincentivize leveraging that higher bargaining power. Such an examination is pertinent in order to reduce transactional costs in resolving consumer disputes whilst meeting the goals of reducing the bargaining power disparities in consumer disputes mediation.

It does so by, firstly emphasizing the vitalness of mediation in e-commerce consumer disputes; secondly, by proposing an altered, long-term focused mediation approach specifically tailored to consumer disputes’ mediation through an analysis of Riskin’s Grid on mediation styles; thirdly, through a game theory-based analysis of incentive structures in the altered, consumer-centric mediation process proposed.

II. INDISPENSABILITY OF MEDIATION IN CONSUMER PROTECTION

The perennially overburdened nature of various consumer fora has vitiated many of the key rationales behind the very idea of having a separate consumer dispute redressal mechanism over ordinary civil courts. The pendency of cases has started to pile up, leading to increased delays and transactional costs, there are a total of 5,54,925 pending cases at various levels of the consumer hierarchy, with the disposal rate being below 90%. The hierarchy of the commissions can further make the process lengthier and costlier, which dissuades ordinary consumers. For example, in SpiceJet Ltd. v. Ranju Aery, the case went from the District Forum to State to the National Commission and then finally to the Supreme Court, passing through four levels of hierarchy. This militates against the very purpose of the current consumer dispute redressal system, which focuses on speed and convenience.  Delays in appointments is another reason for this lag, more than 400 vacancies in appointments of presidents and members of the consumer commissions have been reported. For commissions which do not have to comply with the formal legal procedure under the Indian Evidence Act or the Code of Civil Procedure, but are rather governed by principles of natural justice, it would be reasonable to expect lesser pendency of suits. This is substantiated by the report on Indian consumers by CUTS (Consumer Unity and Trust Society), which showed that only 0.3% of consumers with grievances approach the consumer commissions. This implies that the current dispute redressal mechanism is unable to effectively harness the beneficial nature of CPA, and mediation would be a worthwhile supplement for the extant overburdened system. This is because it is a convenient and easy process, and is mandated (s. 11(2)) to be completed within 3 months of referral by the commissions.

This role of mediation becomes particularly germane with the explosion of e-commerce transactions, where the traditional consumer hierarchy becomes unfeasible, since many of those transactions are cross-border, or the pecuniary claims are too low to be worth approaching the consumer commissions. In these cases, mediation’s non-adversarial and confidential nature, along with its informal procedure makes it ideally suited for consumer disputes. However, the mediation process in India is yet to grow past its nascent stage and has failed to develop despite having been institutionalized in CPA 2019. further. In the absence of pre-litigation mediation, decisions are only referred to mediation once they are already sized by the court, increasing transactional costs. Similarly, there is no clear provision for online mediation, which has a huge role to play in light of the rise in E-Commerce in consumer disputes, which often involves international assembly and transportation. However, in this piece, the focus shall be only the bargaining power disparities.

III. CONSUMER MEDIATION AND BARGAINING POWER

The imbalance in the bargaining power of the two parties in mediation is a chronic issue, but the differences get exacerbated in cases of consumer law disputes. This is because consumer disputes generally involve a lone consumer, although the consumer may be represented by consumer associations, or by large groups through class actions, most instances involve a single consumer, with low bargaining power. Moreover, Rule 4(e) of Consumer Protection (Mediation) Rules explicitly bars matters involving public interest from being referred to meditation, and since class action and CCPA lawsuits involve a large number of plaintiffs, they are generally covered under public interest. The defendant, on the other hand, is commonly a firm offering certain goods and services, which would have a higher bargaining power during negotiations. This relational aspect of negotiating power cannot be ignored during a negotiation where one party is in a position to dominate the other if left unchecked. Hence, the negotiations during this mediation are inseparable from the existing power structures, which are generally skewed in the favor of the seller.

This drawback is left unaddressed by the regulations, which seem to encourage a facilitative form of mediation over an evaluative mediation, through a reading of the wordings of Regulation 12. While facilitative mediation has a wide range of benefits, it turns a blind eye towards negotiation power by keeping the mediator detached from the broad circumstances of the issue, i.e., the relational aspect. This is because facilitative mediation is largely focused on enhancing communications and avoiding misunderstandings and does not emphasize on consequences of the mediated settlement, unlike an evaluative mediation. , this paper will argue that even though facilitative mediation is useful in a lot of situations, for consumer disputes specifically, evaluative mediation along with broad problem framing should be normatively prioritized in order to reduce bargaining power disparities

This can be more clearly understood through an evaluation of Riskin’s grid on Mediation styles. It was developed by L Riskin in 1994 to draw a broad continuum of mediation styles to pursue based on different power dynamics between the parties (Fig.1). This paper proposes that the mediation style on the top right, i.e., an intersection of evaluative mediation and broad framing of problem (Evaluative-Broad) would be best suited for mediating with large power imbalances between the mediating parties, thereby making it best suited for consumer disputes. This is because an evaluative approach, along with broad framing of problem definition would dissuade the party with the higher bargaining power from exercising it by highlighting the loss of consumer goodwill from a repeated exercise of the same. When the issue is framed broadly, it becomes simpler to highlight the long-term benefit of maintaining the goodwill of the company over the short-term benefit of paying lesser compensation by exercising the higher negotiation power.

This becomes clearer on considering this illustration, say a person A enters into mediation with a large conglomerate B over a defective good. Ordinarily, if the mediator is merely facilitative and frames the problem narrowly, such as that in the bottom left (facilitative – narrow) firm B would apply its higher bargaining power to negotiate a minimal compensation and gain in the short run. But if the mediator is evaluative and frames the problem broadly, the mediator would bring to B’s notice the implications of the repeated exercise of this power. The mediator would highlight the possibility that firm B would eventually start losing goodwill from consumers if it continues to dominate consumers and offer unfair, though legal compensation by exercising its bargaining power during mediation. This loss of goodwill, especially for a large firm, would far outweigh the reduction in monetary compensation, and in all likelihood, most firms would tend to protect the former over the latter. Hence, an evaluative and broad-based approach by the mediator, as per the top right quadrant of Riskin’s Grid would disincentivize an arbitrary employment of negotiation power during the mediation process, making it more consumer-friendly and less asymmetrical, and therefore best suited for mediation of consumer . Therefore, Regulation 12 of the Consumer Mediation Regulations should be amended to (i) provide a more detailed account of the mediator’s conduct and (ii) in that detailed account, encourage a conduct aligned with evaluative mediation where the problem is framed broadly.

IV.  GAME THEORY ANALYSIS

The same can be substantiated using game theory, evaluating mediation as a form of modified  , i.e., if both parties attempt to go for their putatively individually best (dominant) strategy, that could lead to an objectively worse decision, as this piece shall show subsequently. It is pertinent to note that in analyzing pay off matrices in game theory, all other variables, apart from the strategies of the two players are assumed to be constant. Moreover, a simplified causal connection is assumed between the strategies since other factors are assumed to be constant. For example, the exercise of higher bargaining power need not always lead to lower compensation on part of the firm, and cooperation by the consumer need not always lead to retention of goodwill for the firm, but it is sufficient on the balance of probability to provide us with a general causal link to understand incentives. The following analysis must be read with Fig.2, which shows the payoff matrix for the firm and the consumer in the illustration given above. The two strategies for the firm are exercising bargaining power, or not exercising bargaining power, while for the consumer it would be cooperating or non-cooperating. For the consumer, cooperation would be seen in terms of avoiding publicizing the dispute and helping the company retain goodwill. Since both players have 2 strategies, there would be 4 possible broad permutations on the simultaneous application of these strategies. These 4 outcomes are seen in the four quadrants of the payoff matrix in Fig.2. For each outcome, payoffs are assigned to both the players, representing the outcome in numerical terms, with the value on the left for player 1 (the firm) and on the right for player 2 (consumer). These payoffs must be seen in ordinal, rather than cardinal terms, i.e., only in terms of a higher payoff reflecting a better outcome for the respective party, without indicating magnitude. For example, a payoff of (10) indicates a better outcome than (5) but it does not imply that is twice as beneficial as (5).

The top left quadrant, in which the firm exercises bargaining power while the consumer cooperates, the payoff is high for the firm (10) since it retains goodwill as the consumer is cooperating while also paying lower compensation since it is exercising bargaining power, while the consumer has a small payoff (1) since he receives lower compensation and still cooperates. In the top right quadrant (exercise bargaining power-do not cooperate), the firm faces a reduced payoff (3) but it is still higher than that of bottom right (1) (do not exercise bargaining power – do not cooperate) because in both cases the company loses goodwill but in top right it pays a lower compensation than that in bottom right since it employs its bargaining power in top right. Hence, due to the payoff matrix formed by the power relations in such consumer mediation cases, the Nash Equilibrium would be the top right quadrant (exercise bargaining power-do not cooperate). Such a situation hurts both the stakeholders, the firm and the consumer. The firm loses goodwill and hence gets a reduced payoff (3), while the consumer gets a lower payoff because of lower compensation due to reduced compensation received. Hence both business and consumer interests suffer in this ., if the mediator pursues facilitative mediation with narrow problem framing, as Regulation 12 seems to indicate at present.

A mediator’s task in such situations would be to bring the parties to the bottom left quadrant (do not exercise bargaining power-cooperate), since it would benefit both the parties in the long run as explained above. The way to do so would be to make the party with the higher bargaining power (the firm) aware of the long-run implications of repeated abuse of its bargaining power, which would reflect in a loss of goodwill. After the mediator’s explanation, a rational player would recognize that since this is a repeated game the strategy of exercising bargaining power would lead to a worse outcome (3) than not exercising it (5). Hence, an evaluative mediator who frames the problem broadly, makes both the parties aware of the long-run implications turns the Nash Equilibrium from the top right to the bottom left. This would go a long way into bridging the bargaining power gap and benefit both the stakeholders. This paper admits that any game theory analysis, by necessity undertakes many assumptions and simplifications, however, this model is only to provide a broad substantiation of Section II, through an analysis of incentives.

V.  CONCLUSION AND WAY FORWARD

Hence, this paper attempted to derive a mediation process customized for consumer disputes. It concluded, based on an analysis of Riskin’s grid that the ideal mode of mediation in cases of large bargaining power variance would be an evaluative mediation where the problem is defined broadly, incorporating the long-term consequences of the mediated settlements. It further evaluated this customized mediation process through game theory, to emphasize how generally, the firm would be incentivized to not wield its higher bargaining power if the mediator highlights the lasting implications of the settlement.

 To give effect to this customized mediation process, it recommends that Regulation 12 be more detailed in its explanation of the mediator’s conduct. At present, it seems to encourage a facilitative, detached form of mediation which despite being effective in many areas, is not suited for consumer disputes. Regulations that promote and incentivize evaluative mediation with wide problem framing would promote a more consumer-friendly mediation process. In this way, a change in Regulations can vastly improve the mediation process among consumers by ameliorating bargaining power disparities.

Sukarm Sharma is a law student at National Law School of India University