Spirit Airlines, a regional discount airline in the U.S., will start charging passengers for carry-on luggage. This makes way, way more sense to me than charging passengers to check bags (though Spirit does that too). In the press release, the airline trots out one of economists’ classic arguments in favor of price discrimination: It is “offering customers the option of paying only for the services they want and use rather than subsidizing the choices of others.” Matt Yglesias thinks this is a step in the direction of a “better world” and cites Paul Krugman’s textbook argument about monopolists achieving Pareto efficiency through perfect pricing. Krugman’s example of how this is foiled in real life highlights consumers lying to take advantage of deals, which struck me as odd, since I tend to think more of companies imposing opaque fees (things like checking into a hotel and then finding out that parking is an extra $20—you hear me, Hartford Hilton?).
I agree with Kevin Drum, however, who argues that having consumers make more price decisions imposes information costs on them, not to mention the wearying psychic toll of added responsibility for finding bargains.
One of the primary causes of personal stress is decisionmaking, and modern life jacks that up every time we’re forced to make yet another goddam decision. Do we really want to have to decide if we want the bread or do we just want to enjoy dinner? Do we want a dozen different options on our flight, or would we rather just buy a ticket that includes all the usual stuff? Should credit card apps have 30 pages of legalese attached to them or would a few simple rules about interest rates and annual fees be enough?
Choice is good. Most of the time we want it, and economically it’s often beneficial. But it can also hide things and make prices hard to compare.
That seems right to me. Companies want to exploit our fatigue by making it more “convenient” to pay more once we find ourselves more or less tricked into being in the midst of more expensive exchanges.
Price discrimination always makes me think of information asymmetries. There seems to be an assumption that consumers know what they want going in and can price themselves in accordingly in a highly price-discriminated scenario. But marketing research has shown that people’s decisions are shaped at the point of exchange. Pricing signals are inherently more unreliable for consumers, who know less about what they are getting themselves into than the sellers know about what they are selling. And there is always the noneconomic sense of injustice that stems from the seemingly unequal treatment of the same people paying different prices for the same good. That doesn’t feel like a better world; that feels sort of sucky.