The curious economics of being ripped off on holiday
timharford.com
timharford.com
Another example is the idea that some people get a better price because they jumped through arbitrary and non-cost affecting hoops. Things like coupon codes or buying on an arbitrary sale day.
The best customer is one that comes in and says "I want this item, I will pay a reasonable price right now and walk out a happy customer"... Instead we give the best price to those who waste sales people's time with negotiations and give the worst prices to those who dont first put in a bunch of work extract the information about the right price. We are increasing the total cost of our products by making the purchase filled with uncertainty (am I getting a good price?) and external costs (I searched 2 hours for a $5 coupon) .
I would propose this. If you're going to give a customer $5 off then give them all $5 off. If you cant give them all $5 off, then give none (maybe give them all $1 off?).
In other words...
Person A: Price sensitive shopper who won't pay more than $2.00 for an Avocado under any circumstance.
Person B: Convenience sensitive shopper who will pay up to $4 for an Avocado.
The grocery store can price using one of two methods... 1) offering the same price to all shoppers, or 2) offering a higher price to most shoppers so that they can offer a lower price to price sensitive shoppers (via coupons, arbitrary sale dates, etc).
With method #1, the grocery store can only sell Avocados to Person B because their prices are permanently higher than Person A is willing to pay. But with method #2, the grocery store can sell to both people because they've created a situation where a less price sensitive person subsidizes the cost of the product purchased by another more price sensitive person. The grocery store makes more money with method #2 in this example (at least hypothetically).
I think the key is realizing that people value things differently. Some people don't look at prices when they shop. Some do. Some people only shop when they think they're saving money, some don't care. Some people value convenience + time more than price, some are the reverse.
Obviously this example doesn't really apply to the first part of your comment about "Grief economy", just the 2nd part about coupons + pricing.
The most obvious added value is faster delivery: ship today instead of in X days/weeks when the auction ends.
It also has weird value if you for some reason believe the BIN price is undervaluing the item, i.e. you can short-circuit the auction before anyone else realises.
> makes the whole system seem much more sensible
But doesn't it apply there too? Price discrimination has many forms, but a less pretty way of describing that one is the retailer creates non-monetary external costs and mixes them into offers, to discourage customers from simply switching to offers where less money changes hands.
Imagine instead of a "spend time clipping coupons rather than reading with your kids" proof-of-work, the retailer creates an offer which requires someone to degrade themselves, to crawl on the floor and beg, to obtain a low price. This happily permits the retailer to extend affordable service to the desperate, without more profitable customers thinking it worth switching offers! So... yay?
Issues include at least some created work functions not having inherent societal value (coupon clipping is perhaps more like bitcoin factorization than like ai-training captchas). And that created costs, and simply the customer categorization they are but one way to obtain, can have negative impacts on lives and society.
It seems economics conversations are often more explicit about value creation and flow, but less transparent about the creation of "negative value", where it ends up, and its effects. There's more involved with an avocado coupon than merely a pair of price discriminated avocado sales.
Assuming 1:1 $2:$4 sales, say the cost is $1. They make $4 if they sell w/ coupon or not. The coupon chasing customer is a lower value customer because it actually takes some overhead to make coupons and to constantly convince them to be a customer. Whereas you can price at $3 and look like a champ compared to your $2 (secret coupon) /$4 (advertised price) competitors...
But who thinks you look like a champ?
To Person A (the person who won't pay more than $2), they won't be a customer because you've outpriced them. To Person B (the shopper who doesn't care if they pay $3 vs. $4) you look exactly the same, because they probably put the Avocado in their cart without even checking the price.
Not only is the coupon strategy twice as profitable for you, more customers are walking out of your store paying a price they were happy with, so you've likely got higher consumer satisfaction.
Hence why price discrimination is somewhat win-win.
I thought it would make him just go away. He produced the money instantly. I've always wondered about that...
That wouldn't work well in e.g. some chinese markets, where the vendors sell to touristy looking people for 5x or 10x the reasonable price.
So, they ask for $200, you make an initial offer of $150, they refuse, you leave, then come back and make an offer of $120. They accept it and you think you've won -- but they might have gone down to $50 too...
How this other guy was so bad that it made him look smart? Wow, head scratcher. Maybe he thought "Now HERE is a good negotiator, after all my BS he raises the price". Haha.
I have noticed their prices are consistently lower than the asking price at high touch dealerships. Especially when you remove hidden feels like "Doc fee" .
I will likely buy from a place with a fair advertised price sooner than walking in at an advertised price of 125% aiming to negotiate it down to 95%.
That's why you call them while you've got something else to do. Put them on speaker while playing a computer game, doing the laundry, or whatever else you'd prefer to be doing, as long as it's something that's easy to pause as soon as they pick up the phone.
Or better yet: do business with the company with the most responsive customer service.
This is sadly true of human relationships as well. I've seen it phrased as "the person who cares the least in a relationship has the most power". If you are madly in love with your partner but they are slightly cooler on you, they are in a stronger position because they are more willing to risk or even break the relationship to get what they want. If you're a very clean person but your roommate is a slob, you're screwed because they're just fine with a level of mess that will quickly drive you nuts.
IMO the treatment of such power speaks volumes of a persons character and would either attract or disgust me ...
This is a psychological ploy, and it doesn't even have to be all that meaningful of an item. At trade shows, it could be yet another novelty pen, an uninflated balloon with an outdated industry joke printed on it, a sticker you'll never stick, or whatever -- something they gave you, and that you will carry around. They don't give out t-shirts or cheap raffle tickets for neon pink Teslas just because they suspect you need one. They're triggering your brain into wanting to give them something in return - your time, your money, your resources. Well, inevitably it's always to eventually sell you whatever their product is, to avoid returns, and get/keep you on board.
A coupon is only one step outward from there. With a coupon, you actively "clip" it or whatever, keep it aside, carry it to the store and then cash it in. Basically a coupon is lame schwag with a hint of psychological manipulation.
If they simply docked the price by 15 cents, nobody would care and the item would probably only sell at normal volume. But on coupons, your brain has been actively trying to pay them back for the honour of having that coupon. Notice, the store honours or redeems them, but only if you hurry and do it before the deadline. You always feel like you're holding up the line and inconveniencing everyone all around for the honour of using them, yet they happily abide you. Because that was the intent all along.
Yes, I'm a couch psychologist. But on this, I don't think I'm very far off the mark.
I think the fixes for this are largely going to be cultural. For example something that could help is everyone having more pride and simply refusing to jump through pointless hoops for a discount (even if it is technically worth their time).
Ideally, you'd use a functional captcha, but even without, it seems it would be as useful to society as most current price discrimination techniques.
I'd imagine people would be much more likely to make a purchase if they have already invested 20 minutes solving captchas to save a few bucks.
These customers are not price sensitive. So you do not want to give them the best deal. Instead the profit maximizing technique is to find customer who won’t pay your “reasonable price” but will pay some smaller amount. You make them jump through hoops so you don’t cannibalize your “reasonable customer” sales.
When done right every customer is paying what they consider “reasonable”. For some that is more money than others.
It was strange. Major sportswear brands make the items I want. I have the money. I'm willing to pay, frankly, much more than the product is worth for most people. But the issue seems to be, somehow, retailers do not stock enough of the kinds of things I want that I could actually buy them.
IOW, the maths of supply and demand seems to be a bit more complicated than one might expect.
The scarcity of the coupon diminishes the discount and wastes real people's lives on triviality.
I'd rather maximize profit by delivering more to my customers, not by extracting more for the same.
When people look at capitalism as a competitive system between multiple businesses, they're looking at an incomplete, broken system. Capitalism should be seen as a competitive system between (at least) businesses and consumers.
Open Source is one way that consumers are able to place competitive pressure on the software industry without starting their own businesses. Open Source products are available for free, often developed at a loss, and they subvert the expectation that software features have to be profitable to exist. Businesses are forced to compete with free, which forces them to implement consumer-friendly features that wouldn't otherwise be profitable.
Adblocking is another important force dictating online content rules -- it allows customers to directly reject a business model, by subverting the idea that profitable content can be forcibly bundled with unprofitable content. Then you have more grey-market pressures like piracy, which forces companies to compete on delivery mechanisms and not just on content.
This kind of subversion helps commoditize content, making it difficult for industries to monetize products that they'd otherwise tightly control. Industries describe this as a bad thing -- if a business model isn't profitable and if creators aren't making money, then something's wrong. But this is consumers doing what they're supposed to do. It is good for consumers to compete by circumventing business models.
In this case, what we'd like to see is consumers colluding to share coupons and deals, so everyone can get the best price. We want to force sellers to negotiate with consumers as a single group, not with each individual person. To a certain extent, we are seeing this, which is why you see certain businesses getting more aggressive about hiding their charges and making coupons harder to share.
Coupons and similar time-wasters optimize the revenue that you get from that 90%.
Nothing that a law that every businesses should have a one click cancel process you can easily and immediately use when you want to, can't fix...
Fortunately, there is a proposal to make it illegal to list prices without including mandatory fees. [1] This would include "resort fees" for hotels and "cleaning fees" for airbnbs or other rentals.
1: https://www.sfgate.com/travel/article/hotel-resort-fees-Cong...
so close, but what does "fees" include? If that legislation required them to include tax _then_ I would be excited
And how airfare comparison sites are required by law to show full prices, not before airport fees etc. the way they did way back when?
It's time for the same kind of legislation to be applied to car rental companies, and enforced on reservation sites so their policies apply worldwide (e.g. when an American books a car to rent from Hertz in Spain, they can't resort to saying it's a foreign subsidiary the law doesn't cover). I'd say they're now the #1 source of sneaky fees and hidden upsells, even worse than banks, cell service providers, and internet providers at this point.
Surprise fees at time of booking should be illegal (e.g. "driving out of country"), and "extra processing" fees (e.g. for a toll with no choice) legislated to a reasonable level (e.g. $5 instead of $50) -- the same way credit card late fees are currently set by law. And toll transponders included in the base price in any country that has any roads where paying in cash is unavailable.
Where's the movement for this? Why aren't we all writing our representatives about this?
In long-established and stable industries like these, regulation can benefit the consumer and we can trust it will still mostly make sense five years from now.
But when industries are evolving quickly, nobody knows which regulations will actually create benefit or harm to consumers (law of unintended consequences) and by the time they're written they might already be out of date.
There's no movement for this because the indignity of being ripped off a few dozen dollars once a year is not a strong enough incentive for people to organize.
Ripping millions of people off by a few dozen dollars, once per year, however, is a strong incentive for car rental places to lobby politicians to protect their business model.
They will ask you for extra insurance. Even when not taking that, they all have been reasonable when returning the car. (Although I do always take pictures before I get in).
For example, When you book a cruise, the price they give you doesn't bring up the fact that the cruise line also expects you to pay the wages for the wait staff and room stewards. If you bring a family of four (the charge is per person) on a 10+ night cruise (the charge is per night), that charge adds up quickly. Something like $15 charge * 4 people * 14 nights = $840 in charges. That can be a significant percentage of the cost of your entire cruise.
Yes, those in the know, realize that they can change the amount that you get charged by going to guest services - but now if you do adjust those fees... the Cruise line has effectively shifted the guilt of shafting these unfortunate and hard working souls on to you. Hope you sleep well at night. Ugh..
Now when I see these types of charges I just shake my head, sigh and move on. I just account for some percentage of unexpected charges such as these when I visit tourist hotspots - Resort fees, Cleaning Fees, Bag check fee, City fees, the list goes on and on and on. It's not right... but the way I see it I can either fret over all these fees, or just accept that they will be there if I travel to tourist hot spots. I don't really know of a solution.
Do the staff see any difference anyway? It's not like they get any more money than minimum, and the cruise company is probably pocketing that "wage".
Just like that one asshole delivery company that pockets the "tips" you can opt to give on their app.
Amazon has items for less than $10, but most items with a price between $0.01-$9.99 have to sell for $10.00 for their free shipping economics to work. That's notwithstanding the fee that your license to buy, i.e. Prime, cost you.
In San Francisco, if you sit down at a restaurant, take the written prices on the menu and multiply them by 1.5 to get what you'll actually be paying. I don't think it's that bad in Los Angeles.
Further, in San Francisco, if you sign up for $40/mo fiber Internet, it's really $63.50. Somehow Sonic managed to break past 1.5.
The takeaway is there is no hard and fast rule about transparency in pricing. It's all psychological.
Is this anything other than taxes and gratuity (which, technically, you can give 0% for)? I'm trying to understand how even with 20% gratuity and SF's 8.5% tax, how you could get anywhere close to 1.5.
> Amazon has items for less than $10, but most items with a price between $0.01-$9.99 have to sell for $10.00 for their free shipping economics to work. That's notwithstanding the fee that your license to buy, i.e. Prime, cost you.
Amazon actually now will give you a longer ETA on cheap items to make it more affordable for them.
>Is this anything other than taxes and gratuity (which, technically, you can give 0% for)? I'm trying to understand how even with 20% gratuity and SF's 8.5% tax, how you could get anywhere close to 1.5.
It's mostly hyperbole. There's an additional 4-6% charge that's fairly common to see for "SF employer mandate" which is sort of BS in its own way, but that only gets you up to a bit over 1.3x.
I haven't been to the Bay in over a year, wasn't sure if something's changed since.
$73.63 once your promotional price expires.
>Modem fee: 5$ >Wifi fee: 6$
Really makes me love the company! /s
Fee fee fee
I know I can return the router, but what I wish I could really "return" is the phone service that adds a ton of taxes.
Sure. But in terms of compliance costs, an active account costs just as much, and perhaps more (if there are compliance costs per transaction, not just per account).
> Not to mention that the bank makes a spread on deposits
They make a spread on money left in the account. But I can leave money in an inactive account, too, and they make just as much money on that.
Edit:
I did a little research. Bank of America has no dormant account fee that I can find. SunTrust does[1]... but only for Florida accounts, for some unknown reason. This may be a jurisdictional thing.
[1] https://www.suntrust.com/content/dam/suntrust/us/en/personal... (page 6)
"From 6 April 2016, 'active member discounts' are banned. This means you are not allowed to charge the pots of non-contributing members more than you would have if they were active members contributing to the scheme. Employers are still permitted to pay charges on behalf of active members so long as the total charge level imposed is the same for contributing and non-contributing members. ...The ban applies to non-contributing members where at least one contribution for them has been made to your scheme on or after 6 April 2016. The contribution needs to have been made while they worked for the employer who is using the scheme to comply with their automatic enrolment duties." https://www.tpr.gov.uk/en/trustees/managing-dc-benefits/5-va...
Something similar: fees for dormant prepaid card accounts.
My guess is that even though your funds provide some sort of float to the card issuer, it's still a liability on their books that they need to somehow manage.
Thing is, nobody has agreed to anything yet, so you have just signalled your willingness to commit to that anchor price when you show up, now at a disadvantage because you have no other plan or way to get to a competitor, and they can pile stuff on until your complaining causes them opportunity cost against screwing other people.
Making a decision takes effort and energy, meaning once you have done it, you have less if it to argue. Pretty much every online price for holiday or services I have seen has a %33 markup of "fees," "insurance," "deposits," above the sticker price.
When someone renegs on a deal or tries to add "what about this one last thing," once you've committed, leave.
I later got him to switch to PagePlus for under $30/month, but only after his phone broke. The line access fee is, admittedly, marked in small text beneath the actual price on their current website.
In much of the world, I'd just use a pay-as-you-call SIM, probably with it set to automatically top-up. The price of calls varies widely, I have one aimed at immigrants which charges €0.005/minute for some international calls but is expensive for local calls, but it's appropriate for "emergency" phone use.
After buying the ticket, I was offered the chance to actually be able to pick my seats, for $85 or so. I decided to do so, and was then taken to the seat map, which showed 3 middle seats available. What's the point of picking your seats if you have to pick between the 3 worst seats on the plane? And how did Alaska thread the needle so their ticket prices don't get flagged as being not-real-economy-tickets?
Our economy is filled with jobs that effectively cancel eachother out.
I had rented the car in Georgia, so the transponder wasn't even an option. A couple of weeks later at home, I got a bill in the mail - $4 for the toll, and a $50 processing fee from the rental company. It had already been charged to my credit card.
I agree that the processing fees charged by rental car companies are ridiculous, though. The per-day rental charge for toll passes (in addition to the tolls) is also ridiculously high.
The funny thing is that they managed to charge my card, although it was a debit card that had expired in the meanwhile, and the linked account had 0EUR on it (the bank gracefully paid them, then automatically converted money from my other accounts to cover for my now-negative account balance).
The credit card being expired means nothing, you have to completely leave said bank. Direct debit arrangements are even worse in this regard (see also: gym memberships).
https://thepointsguy.com/news/dollar-overcharged-me-for-toll...
I wonder what the traffic imbalance is.
Of course, if your competitors engage in tricks, you have to as well. Otherwise you're relegated to the bottom of the list where no one clicks.
The natural equilibrium sucks. What's the solution?
* Ignore items that do not match what I searched for
* Ignore anything which is not in stock
* Ignore anything with less than 100 sales
* Ignore anything with less than 4 stars
* Ignore anything with too few negative comments
* Plus some kind of ignore filter for "leave us 5 stars and get a free charger"
Rented an Avis car in france, It came damaged so we got the guy in the shop to sign off on the little car diagram.
Long story short, they charged us for the damage. It wasn't a ton (100$), but Avis "dispute resolution" didn't believe us despite the photos and the damage document.
There comes a point were you ask yourself, how much time I'm going to put into getting this money back.
The credit card company thankfully looked into and the charge was rejected, but the grief it causes.
Also the airbnb problem resolution.. the agent is getting paid to save the company money, so they'll dick around with you as long as it takes.
Maybe someone can make a "Fight-against-companies-as-a-service", but maybe that's the CC company's portfolio...
Combine that with the sudden resort fee we didn't know about until we got to the hotel, and we spent that first night and next morning wondering if we'd made a huge mistake.
Same goes for mandatory valet parking…
Oh, wait! We need to add:
1) sales tax (9.75%) = $1.75
2) tip (20%) = $3.60
3) S.F. Mandates (4 to 6% depending on restaurant, let's say 5%): $0.90
Total? $24.25, or roughly 35% higher. Unbelievable, and ridiculous.
I wish all restaurants would advertise the FINAL price.
Governments have little appetite to tackle any of this within the tourist industry. All the fleecing is just adding tax revenue by skimming it off people who don't live there and won't vote for you. It's perfect. As long as it never hits a point where it starts discouraging tourism nobody is going to care.
In addition to the problem the article highlights, there is also the mess that is human psychology.
JC Penney tried replacing random discounts with everyday low prices [1]. It backfired. Their shoppers wanted to play the irrational game. (My assumption is rational shoppers shopped elsewhere, but that's neither here nor there.)
[1] https://www.forbes.com/sites/panosmourdoukoutas/2013/09/27/a...
Whereas 1/2/3 star hotels aimed at the tourist market, and even the cheapest freeway-adjacent motels like Super 8, mostly all have free wifi because if they don't, people paying out of their own pockets will go elsewhere.
Without some experiments backing this up, this argument sounds contrived and perhaps overthought.
I seriously doubt there are that many "sophisticates" who factor that into their decision, even less so, sophisticates who would consciously go for the "hidden charges" business with the idea that their savviness would help them avoid the charges.
In any case, the fix is simple: regulating hidden charges away with business destroying penalties.
If the rental companies face a law that they should make all charges known in advance of be shut down, they'll change their tune in unison, and there would be no "hidden charge" competitor advantage...
This is nothing to do with subtle economics. It's extortion because you're in a foreign country and desperate. I think we are just talking about a very unethical company.
With a credit card, they can place a $2,000 hold on your card. If you've only got $100 in your debit account, it makes it a lot harder for them to recoup costs if you damage the car, above all for someone international. The whole point of debit instead of credit is you can't spend more than you have (usually). Car rental is in a pretty unique category of purchase, to be honest, in that they're trusting you temporarily with equipment worth tens of thousands of dollars.
(Debit card holds do exist sometimes, but can be much more limited than credit card holds, and may have additional international restrictions.)
I've never heard of charging extra to allow it though. I guess they ran they numbers and calculated the actual additional risk they're exposed to?
There are credit cards out there (e.g. student ones) with abysmally-low limits. And I can easily keep a hold of ~$2,000 on my Visa/Mastercard debit card, as long as I have that amount in my bank account.
They placed a $1 hold on the card. If memory serves, I've also done this with Hertz but to the tune of a $200 hold.
Probably my least favorite is event ticketing, just because it's so shameless. And it isn't even a monopoly anymore. For example, my local concert venue recently advertised tickets to a concert at $35 each. After all the ticket fees and service fees and other mandatory unavoidable charges, two tickets ended up costing $100. The service provided for that extra $30, which was to a third-party ticketing company but not one of the giant ones, was, as far as I can tell, to print off a piece of cardboard and leave it at will call.
It boggles the mind.
Renting a car in the US is painless and pretty risk-free.
Renting a car in Europe is different. I've read multiple accounts of local aquantancies here arguing with car rental firms about minor scratches that US rental firms just wouldn't care about.
When I return a rented car in the US the overworked guy I return the car to seems to be happy as long as the car is at least mostly intact.
In Europe meanwhile, you should worry about the rental company looking for minute scratches and then charging absurd amounts for these.
I don't rent cars in Europe. (Not sure if this is a Scandinavian, Northern European or European thing.)
I can't pick up a car in Europe in less than an hour, have to check/photograph everything. I have an actual checklist.
The difference is that it's my checklist and I do it, taking the required time. Photographs of every panel. It is inspired by all the times I've been ripped off or they have tried to rip me off.
There should be a website where you can report shenanigans.
I don't think there's a more egregious rip off than mandatory "resort/destination fees" - a lot of hotels charge $40-50+/day extra on top of the stated room rate as a daily "fee" for the pleasure of using the gym or internet. Marriott is currently being sued in several states for these fees. Write about that if you want to discuss a "rip off" - not a 15 eur fee.
So it might have been a reasonable device to use for expressing this dynamic.
It's one of those "dark patterns" that feels scammy.
Compare it to getting off an airplane, arriving at the car rental kiosk to pick up your reservation, and discovering that your options consist of shelling out $100 in bullshit fees, in order to actually get your car - the car that you've placed a non-refundable reservation for.
(And even if you throw a fit, and get a refund, your only option is to go across the street, and eat a $150 markup on a same-day car rental, instead.)