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Archive for Monday, November 26, 2001

Consuming gets complicated

November 26, 2001

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In Kmart recently, as I stood contemplating the purchase of a cheap suitcase (never mind why), an employee came over to ask whether she could help. This was shocking enough. But then, when I confessed to indecision, she offered me 20 percent off. She scrawled something on a blank scrap of paper, which I dubiously took to the checkout and, lo and behold, the cashier knocked almost four bucks off the price. All without a blue light to be seen.

My first thought was: What a deal!

My second thought was: Have I been overpaying all along? Are we supposed to negotiate now? At Kmart?

The day after Thanksgiving marked the start of the American holy season of Shopping. Like Ramadan, Shopping need not interfere with a war, and vice versa. The president has said it's our patriotic duty to keep shopping. We can't let terrorism change our way of life! But shopping is getting more complicated.

Historian Daniel Boorstin has written about how the industrial and commercial revolution of the 19th century brought standardized goods, such as clothes pre-made in various sizes, rather than made to order at standardized prices. Our current industrial and commercial revolution is reversing these developments. Computers allow clothiers from Levi's to Brooks Brothers to offer pants personalized for your personal rear end. On the Internet, you can fine-tune your appetites almost endlessly, and you rarely have to settle for cerise because taupe is out of stock.

But thanks to computers, you can also find yourself sitting on an airplane next to someone who paid a fifth of what you paid for an identical seat. The airlines may have started this whole trend a couple of decades ago with the development of software that can change prices and restrictions minute by minute.

The tragedy of charging everyone the same price, from the seller's point of view, is that the price is set by the most reluctant buyer. Everyone has a price he or she is willing to pay for, say, a Harry Potter Junior Anthrax Detection Kit. If the actual price is $39.95 plus tax, anyone whose own price is less doesn't get one. But anyone whose price is more, even much more, pays just $39.95. The challenge is to sort out the folks willing to pay $49.95 or $69.95 and to prevent them from getting it for less. And the usual solution is: Add hassle.

Harry might, for example, decide to charge $49.95 with a $10 mail-in coupon. Coupons used to be found mostly at the supermarket, for amounts like seven cents off at the cash register. Now you see them for $100 off a $2,000 computer except that you have to mail them in with copies of the receipt, a code number stamped on whatever bit of packaging you're most likely to have thrown away, and your grandmother's citizenship papers and then wait 60 to 90 days for a check. Why not just knock $100 off the price? Because some people won't bother with all the complications. In effect, these folks pay $2,000 while others pay $1,900.

The airlines need to play an especially ruthless game of chicken with their customers since a seat from Miami to Chicago, unlike a washing machine, becomes worthless if it isn't sold in time. So as every flight gets nearer, the airline is willing to accept less and less at the very time some passengers are willing to pay more and more. The infuriating rules about Saturday night stayovers and so on are a crude alternative to administering truth serum and asking, "So how much are you really willing to pay?"

Standard pricing has always leaked a bit. There have been annual or semiannual sales. But now, aided also by computers, places like Target adjust prices up and down so much that they must post signs promising "our lowest sale price of the year" when they really mean it. Meanwhile, outlet malls have evolved from selling actual overstock into a method of segregating the low rollers from the high ones on the basis of how far you're willing to drive for a bargain.

Cars and houses are the only purchases most Americans are used to haggling over. And most hate it. Worse than just a hassle, bargaining is fraught with anxiety about being suckered. But even as the auto industry has been dabbling with one-price-fits-all, along comes the most successful Internet e-commerce site, eBay, to reintroduce bidding and bargaining for almost everything. EBay, it turns out, is not about finding a new home for that old lamp in the attic. It's a new channel for regular commercial goods in which each buyer is induced to reveal and pay a custom-made price. And apparently even Kmart now regards its own prices as just an opening bid.

Is the disappearance of standard prices a bad thing? Not necessarily. Most of these examples are the result of information technology. Classical free-market theory assumes all players have "perfect information." IT is bringing reality closer to this implausible theory, thus making the economy more efficient. Varying prices may well average out to be lower than the standard ones they replace. And poorer people may well benefit disproportionately, because the opportunity to endure hassles for a bargain is a better deal if you're poor than if you're rich.

On the down side, artificial hassles are a strange thing for a healthy economy to be churning out. As if we didn't have enough real ones.

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