♫ We don’t need no regulation ♫
♫ We don’t need no price controls ♫
♫ No dark intentioned new bureaucracy ♫
♫ Washington leave that market alone. ♫
Apologies to Roger Waters and Pink Floyd for abusing their lyrics, but when I recently read It’s Time to Ban Hidden Fees, I thought of the implications of government controls. While I agree with Rafi Mohammed that hidden fees can be infuriating, I don’t think more laws are the answer. Instead, let customers express their disapproval to the merchants by not purchasing, and let new entrants create new options that people value more.
If I can summarize them, Rafi’s main points are:
- When you look at the price advertised or on a price comparison site, you still don’t know the full price
- The add-on features are not optional
- It is hard to compare prices when the add-ons are not equal.
All these things are true; however, I don’t believe new laws are the solution. Consider not knowing the full price of something when you see a price on a website. You also don’t know the amounts for shipping and sales tax until you get to the point of paying for an item. Similarly, if it is a live event, you also don’t know how much it will cost to get there, park, buy food, etc. It is true that parking and food are optional, but something most participants still purchase. To give people a perfect understanding of costs before they click, should we require the sellers to estimate and disclose sales tax, shipping, parking, food, etc. in the listed price?
Rafi is somewhat correct that things like resort fees and admin fees are not optional. (By the way, neither are sales taxes, excise taxes, airport fees, etc., and they are all added to the listed price.) More importantly, we are always free to shop elsewhere if we don’t like the fees, which in a sense makes them optional. If the 3% Kitchen Appreciation Fee really bothered me, I would simply tell the manager, “I don’t like this practice, and I won’t be back.” If the resort fee really bothered me, I have the option of not staying at that hotel, and I have that option before I click to complete a purchase.
As far as price comparisons, add-on fees are not the only challenge. Some hotel room rates include breakfast and others don’t. Some include overnight parking, while others do not. Some airline fares include checked bags and overhead bags where other fares don’t. Travelers somehow figure it out and make a choice before they click to buy. Yes, those things are optional, but there is still value to them. Should we make the sellers display the values they assign to those features?
The same comparison challenge exists for many products. Computers, televisions, homes and autos all sell with a range of optional features and for a range of prices. We don’t force the sellers to somehow get the comparison down to a single number. Somehow customers can weigh the differences and make their choices.
In all these cases as well as Rafi’s example, consumers are informed about the add-ons before they complete a purchase. They can always back out. If enough customers express their displeasure by not purchasing, the suppliers will get the message and change. In our current social media environment, how hard would it be to connect with like-minded customers and organize a boycott of the sellers whose business practices you don’t like? If enough customers apply pressure, change is inevitable.
It is possible that the entities currently adding special fees will not change. If they do not, their competitors can change the business model and see who wins. Just as Southwest Airlines includes checked bags in their fees and advertises that fact, competitors can find new ways to compete and advertise it. Also, potential new suppliers can enter the market and provide an alternative that people value more.
Ride services are a great example. For years customers were frustrated at the challenge of calling a taxi and being confident it would arrive promptly or when promised. Uber was started in part to address that problem. The launches of Uber and Lyft have done more to improve ride services, which were highly regulated, than any new regulations ever could.
As you read this, you may concede my points are possible but still wonder why not make it easy with laws against add-on prices. The answer is more laws make things more complicated and drive up the cost to serve. New laws inevitably result in new bureaucracies that are needed to enforce those laws. Those bureaucracies cost money which means more taxes. Over time, those bureaucracies nearly always expand their scope and their size, costing even more money. If you doubt that, try to come up with a governmental entity that has not grown.
New laws also inevitably lead to more lawsuits. The cost of defending or settling those lawsuits eventually ends up in the cost of the product.
I don’t like add-on fees or pricing surprises any more than anyone else. I agree with Rafi that I prefer transparency as a consumer. That said, I believe the best way to get there is to allow companies to compete in the market and let customers determine which model is best. Trying to protect us by creating new laws would ultimately cost more than it is worth.
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