Yes, this is a market failure. It produces all the wrong incentives. On the part of the seller to find suckers and on the part of the buyers it sorts according to ability/willingness/capacity to shop around, a dubious axis to sort by. For stock markets, the solution comes through regulation NBBO price (National Best Bid and Offer). Or does it sound like a good policy to let each stock market charge a different price for APPL for consumers who don't shop around (think Robinhood not HFT). In fact, this is exactly where regulation might help.
It's interesting you said "look around with your own eyes" in that the example I was thinking of was eyeglasses. Most people pay hundreds of bucks when you can buy them for $30 from places like Zenni.
I suspect that for a lot of people it's about the "noise". That as the people's "life feed" just gets louder and more awash in all forms of contradictory information they shut down and all forms of new information have a much harder time getting in. People's overwhelm thresholds are just constantly being tested. This feeling that that they'll never be able to do a satisfactory job of shopping, or research, or vetting results in a kind of surrender to the readily at hand, the comfortable. It's living mentally on the other side of "the paradox of choice" full time. Sure, I see the better deal, but is it really? I really should read that fine print to see if I'm getting suckered (again), I really should spreadsheet all the myriad options, I really should check to see if all these review sites are just shill sites. Oh no, another related side quest rabbit hole. Oh no, why has my inbox and social media feed and all the surfing targeted ads now started blasting me with even more stuff I've been researching? Uncle, UNCLE!
I feel like they understand this in politics the last few decades. Just rain a holy hell of info (and dis-info) down on their heads and they'll grasp the hands of the few they know and trust even if they're pretty clearly the worse choice. The any port in the storm theory I guess. Just crank up the storm and people make poor choices.
Bryan, I see your point--that can save you money on that transaction, but let me ask you: Have you ever had a business or service that you contracted out--say for you it might be "professional speaking?" I don't know your rate level, but for the sake of argument, let's use the round number of $10,000 for a one-hour speech. Let's say you go around the country doing $10,000 one-hour speeches. Maybe you have multiple agents who place you in those $10,000 gigs. Now if one customer says, "Will you do it for $9000?" What will be your response? You might decide anyway to do it for that rate, but YOU WILL RANK THAT CUSTOMER LOWER at least in some domain, as in "1) He doesn't appreciate your worth; and 2) He's more difficult to deal with since he's not accepting your price as is."
For regular "personal vendors:"--doctors, psychotherapists, car mechanics etc., I don't want them to demote my "rank as a customer." I don't ask my ophthalmologist to lower his office visit fee for me.
I used to own and operate a moving and storage company. If I gave you a quote to move your house for $2500, and you asked, "Can you do it for $2250?" I might agree to do it for that price, but that would knock you off my "Best Customer List." In the future I would favor my "best customers" over you. What I want are customers that pay my price PLUS GIVE THE WORKERS BIG TIPS!
Great piece. I'd add two other explanations in the literature. First, frugality has high time costs. One can appreciate Beckerian theory applied to these cases. Second, for homogeneous goods, rival firms can more easily match cartel prices (which only works up to a point).
Is it really so easy to find a discount realtor? When I was buying a house, I started off with a discount realtor service, but they seemed unable to answer basic questions, like... if I wanted to buy this house what would my next step be. I started to suspect that they never made any actual sales, and just monetized by selling my contact information.
The vast majority of realtors, seemingly including all the baseline competent ones, all had the same fixed fee schedule.
It's a tax on your time, patience, mental and spiritual energy.
It may in some sense be unavoidable because there is a competitive advantage in taxing people, but in some cases I wish every firm would be equally "inefficient" at exploiting every trick they can. Then none would be at a disadvantage and we all wouldn't need to waste our time.
It's like the argument that in sports you can get an advantage by min/maxing every sabermetric, but it makes the sport a lot less fun to watch.
Classic evidence for this is lower headline prices for new customers (I.e. careful shoppers) compared to existing ones - and this isn't CoA, because existing customers can normally get the "new customer" price by threatening to leave. It's simply market segmentation on "laziness."
I agree. I also see this with no name food products. Some are slightly different from name brand. But many are an identical product but 20% cheaper, and right next to the name brand on the shelf, but people still buy name brand! I think people have a very deep desire not to be weird
Yes, this is a market failure. It produces all the wrong incentives. On the part of the seller to find suckers and on the part of the buyers it sorts according to ability/willingness/capacity to shop around, a dubious axis to sort by. For stock markets, the solution comes through regulation NBBO price (National Best Bid and Offer). Or does it sound like a good policy to let each stock market charge a different price for APPL for consumers who don't shop around (think Robinhood not HFT). In fact, this is exactly where regulation might help.
It's interesting you said "look around with your own eyes" in that the example I was thinking of was eyeglasses. Most people pay hundreds of bucks when you can buy them for $30 from places like Zenni.
I suspect that for a lot of people it's about the "noise". That as the people's "life feed" just gets louder and more awash in all forms of contradictory information they shut down and all forms of new information have a much harder time getting in. People's overwhelm thresholds are just constantly being tested. This feeling that that they'll never be able to do a satisfactory job of shopping, or research, or vetting results in a kind of surrender to the readily at hand, the comfortable. It's living mentally on the other side of "the paradox of choice" full time. Sure, I see the better deal, but is it really? I really should read that fine print to see if I'm getting suckered (again), I really should spreadsheet all the myriad options, I really should check to see if all these review sites are just shill sites. Oh no, another related side quest rabbit hole. Oh no, why has my inbox and social media feed and all the surfing targeted ads now started blasting me with even more stuff I've been researching? Uncle, UNCLE!
I feel like they understand this in politics the last few decades. Just rain a holy hell of info (and dis-info) down on their heads and they'll grasp the hands of the few they know and trust even if they're pretty clearly the worse choice. The any port in the storm theory I guess. Just crank up the storm and people make poor choices.
Bryan, I see your point--that can save you money on that transaction, but let me ask you: Have you ever had a business or service that you contracted out--say for you it might be "professional speaking?" I don't know your rate level, but for the sake of argument, let's use the round number of $10,000 for a one-hour speech. Let's say you go around the country doing $10,000 one-hour speeches. Maybe you have multiple agents who place you in those $10,000 gigs. Now if one customer says, "Will you do it for $9000?" What will be your response? You might decide anyway to do it for that rate, but YOU WILL RANK THAT CUSTOMER LOWER at least in some domain, as in "1) He doesn't appreciate your worth; and 2) He's more difficult to deal with since he's not accepting your price as is."
For regular "personal vendors:"--doctors, psychotherapists, car mechanics etc., I don't want them to demote my "rank as a customer." I don't ask my ophthalmologist to lower his office visit fee for me.
I used to own and operate a moving and storage company. If I gave you a quote to move your house for $2500, and you asked, "Can you do it for $2250?" I might agree to do it for that price, but that would knock you off my "Best Customer List." In the future I would favor my "best customers" over you. What I want are customers that pay my price PLUS GIVE THE WORKERS BIG TIPS!
Great piece. I'd add two other explanations in the literature. First, frugality has high time costs. One can appreciate Beckerian theory applied to these cases. Second, for homogeneous goods, rival firms can more easily match cartel prices (which only works up to a point).
Is it really so easy to find a discount realtor? When I was buying a house, I started off with a discount realtor service, but they seemed unable to answer basic questions, like... if I wanted to buy this house what would my next step be. I started to suspect that they never made any actual sales, and just monetized by selling my contact information.
The vast majority of realtors, seemingly including all the baseline competent ones, all had the same fixed fee schedule.
It's a tax.
It's a tax on your time, patience, mental and spiritual energy.
It may in some sense be unavoidable because there is a competitive advantage in taxing people, but in some cases I wish every firm would be equally "inefficient" at exploiting every trick they can. Then none would be at a disadvantage and we all wouldn't need to waste our time.
It's like the argument that in sports you can get an advantage by min/maxing every sabermetric, but it makes the sport a lot less fun to watch.
Classic evidence for this is lower headline prices for new customers (I.e. careful shoppers) compared to existing ones - and this isn't CoA, because existing customers can normally get the "new customer" price by threatening to leave. It's simply market segmentation on "laziness."
I agree. I also see this with no name food products. Some are slightly different from name brand. But many are an identical product but 20% cheaper, and right next to the name brand on the shelf, but people still buy name brand! I think people have a very deep desire not to be weird