Tuesday, July 18, 2006

Beware of Printer Pushers...

The San Francisco Chronicle recently had a piece about our "hidden-fee economy." You know-- you get a hotel room for $75 a night, but find that there are a number of surcharges that push the price past that amount. Further, if you wish to use any of the facilities provided by the hotel-- phone calls, parking, sodas, etc.-- then you'll pay a premium above the market rate for them.

The Chronicle's bit is based on an article from a recent issue of the QJE by Xavier Gabaix and David Laibson. Their journal article is here. By the way, I'm absolutely shocked that the QJE would publish something from someone at Harvard and/or MIT.

Anyhow, Laibson contends the following: "We think there are robust market forces that serve to suppress that information, and keep it surpressed.

I have to admit-- I don't know many people who haven't been fooled by a hidden charge at some point in their life. But I also don't know many people who haven't improved their ability to not continually get tricked into situations like this. If there are robust market forces that serve to suppress information (i.e., the fact that the advertised price my not reflect the true cost), then I think you also have to admit that there are robust learning processes in which people are discovering what they are getting and what it is actually costing them. I could believe an argument that these pricing schemes would persist in order to take advantage of all first-timers (the never-been-tricked group), but I'm not sure that that's a big problem. Learning curves exist in just about every aspect of life.

Anyone else get the feeling that these people just got hosed buying ink for their free printer for the first time?

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