2007-06-04

The Economics of Confusion

Canada Is Efficient
In some countries, say Ireland or Morocco, the price you are going to pay for a product or service is unclear. In some cases you are supposed to haggle, in others, it is a take it or leave it situation. The Irish shop keeper will basically charge you what he or she can get away with.

I used to pride myself by thinking that I live in an efficient country where we don't haggle over things like groceries or electronics. This contributes to lower prices and just makes life easier. Quebec even has legislation requiring shop owners to put the price of items on or near the items. Other provinces, such as New Brunswick, don't have this requirement, but general customs and the federal competition legislation usually keeps thing clear at the store.

Incremental Pricing
If there were "Premium Electricity", people would buy it. Some people are that stupid. Incremental pricing is a fact of life in Canada. Hair cuts, movies, air travel, gas, cars, you name it, there are different prices for the same product or service. Even at the grocery store you have to be careful what size you buy as the price can vary significantly (bigger isn't always better). This makes comparing prices more difficult. For example, you have to compare the adult movie ticket price to the adult price at the other company, not to the student price.

Sign this contract so you don't bolt when we rob you
Phone and cable companies, however, have crossed the line from incremental pricing to confusion economics. Their pricing is intellectually dishonest. In other words, they lie.

System access fee, digital service fee, 911 fee, installation fee, migration fee, early cancellation fee, downgrade fee, moving fee. Try and compare one long distance plan to an other. Or a cable plan to satellite. If you have a pamphlet, there is usually fine print outlining the fees. And if you are a university graduate, you can probably figure it out. However, radio, TV, and phone orders all contribute to dishonest pricing being advertised as the fine print is non-existent. Even on the Internet, some times the price you see on the web site (if you can find it) is not what you will see on your bill.

Utilities have taken advantage of our cultural acceptance of additional charges, thanks to various sales taxes, and freely add extra charges, often disguised as taxes (System access fee and 911 charge, for example).

Churn
Churn, customers swapping service providers, is a huge problem for companies. I've seen customers switch Internet providers three times in the same year. Some times the customer is to blame, as they simply have an irrational urge to save money, even at the price of time and major inconvenience. But I'm convinced companies are to blame as well. The pricing is so complicated that people switch thinking they will get a better deal, then bolt when they get their first or second bill and realise they are paying more than they used to, not less as they thought.

What is this, the third world?
This dishonesty in pricing is inheritable inefficient. Short term profit for long term pain. Companies spend hundreds of million of dollars on branding only to have it destroyed by an extra 5 dollar access fee. If Rogers or Bell will rip you off, why not try the no name provider/reseller?

Red tape please
So this is what I propose: Red tape. Yes, a bit of red tape can go a long way to making our economy more efficient. Do we need three types of gasoline? No. Gone. First class on flights? Contributes to global warming. Gone. System access fee, digital service fee, 911 surcharge, etc, etc. Gone.

Life would be simpler and companies would have to concentrate once more on providing the best service at the best price. Imagine that!

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