Jun

18

Why aren’t all prices available?

June 18, 2008 | 7 Comments | Joshua Gans

Fuel, groceries and now child care fees. The Federal government seems to like the idea of all prices being made available on the web. In the case of Childcare Watch it is pretty innocuous as there is no requirement o fix charges. But I guess the natural question to ask is: why not everything? Reducing search costs for consumers is generally a good thing. It creates transparency and it will likely enhance competition — well, price competition anyway.

But think of othe areas where this can occur. We will see banking fees before too long. But what about popcorn prices at the movies or internet charges at hotels? How about the basket of groceries at convenience stores? And how about even the price of a car? What about my electricity supplier or even mobile phone plans?

All this seems to be designed to correct a market failure whereby firms have incentives to make their prices harder to compare with their competitors.

Here is really what the government should do. Partner with, say, Google, to develop a platform for price comparisons (Google used to have Froogle but that was a vehicle for sales as well as search) and call it say, PriceWatch. Run a rudimentary survey of prices and put them on the site. If a particular firm wants to upload recent prices and also additional characteristics, let them. Otherwise they can rely on the government’s best assessment. Then it is voluntary although there will surely be a big incentive to join the fray. The good news is that this could also provide a set of information that could be used by would-be entrants to think about entering particular markets.

Anyhow, rather than move from good and service to good and service, if this is what the government wants then go for it as a policy rather than piecemeal.


Comments

7 Responses to “Why aren’t all prices available?”

  1. Mark Heydon on June 18th, 2008 11:56 pm

    Your post reminds me of my recent experience in trying to buy a trailer bike for my son.
    Had the thought that I may as well get a second hand one and started looking on ebay. (I’ve sold stuff on ebay before but never bought anything, so am probably saying what everyone else already knows.)
    Turns out there is a bike shop in London (my current location) which has a very big sideline shop through ebay – presumably to get rid of excess stock or move container loads of goods brought in specially from China (or wherever). My interest piqued, I explored a little and it turns out that there are a huge number of dedicated on line ebay shops with incredibly transparent pricing. I don’t like to make predictions (especially about the future!), but I have to think it can’t be long before most major categories of goods (and perhaps one day services?) will be catered for by some enterprising people via ebay – essentially your global price watch is almost here.

    Anyway, the market dynamics looked very interesting so I took the last two weeks of sales from the ebay data and did some simple analysis. The RRP for the trailer bike this online shop sells is £119.99. The actual prices achieved vary from £26 to £58 (+£16 postage), with more than two thirds of sales between £35 and £45. A considerable saving, even including postage, off the price you could get in any bricks and mortar shop.
    One interesting thing I noticed was that despite these trailer bikes being brand new goods from a reputable seller (I have bought stuff mail order from them before), there were a number of other individual sellers selling used trailer bikes, with no warranty as to quality/condition etc, yet often the prices they were achieving were equal or sometimes greater than the brand new article. It seems that some people don’t have the time/inclination/intelligence to use the pricing data that is readily available.

  2. Kevin Cox on June 19th, 2008 6:08 am

    This would cost the government nothing if they said that they have $X available for online advertising on such sites and are committed to spending it over the next two years. They could take the advertising dollars from their current ad budget. They could also require that sites give performance indicators of the effectiveness of ads.

    Watch the websites arise naturally and compete for the ad dollars both from the government and from other groups.

  3. Adrian C on June 19th, 2008 9:51 am

    The service http://www.staticice.com.au/ searches through online prices for computer goods. Something similar could be designed for a broader range of items.

  4. Francis Xavier Holden on June 19th, 2008 12:31 pm

    Why not have public scanners at say the local library where a consumer would take their food docket and scan the prices in and then automatically aggregate a given retailers prices for a basket. All of this info should be availbale on the docket and given that there is really only two major supermarts accurate scanning would be trivial.

    Mark – on ebay. The ebay past sales feature is an underused gem. Looking for a second hand bike I found that most brand names (used) were sold on ebay for at or near new price – given that new has warranties etc it was a no brainer to buy new bikes.

    Similarly with a home gym – I found an online bay shop had a physical outlet where I was able to touch, feel etc – they have a fixed price at their outlet.

    I watched and bid for a month or so. Around 15% went for a few dollars less than the fixed price with 50% going for a few dollars above fixed price. But the amazing thing was the 35% going for more than $40 above the fixed price they were available at the wharehouse. Seems like a lot of people don’t really care about price or comparison shopping. Or what is more likely – once people think they are a smart shopper say by using ebay then they are convinced it must be a cheap price.

  5. Francis Xavier Holden on June 19th, 2008 12:43 pm

    I noticed that the gym guys had cleverly set up their small showroom (with fixed price) at the depot so that people coming to pick up an eBay purchase did not access the showroom unless they made a real effort. I questioned them and they told me it was not unusual for eBay people to pay up to 30% more than their fixed price.

  6. Mark on June 20th, 2008 9:20 am

    Just trying to think through the economics of this:

    * firms empliy various strategies that make comparisons harder, thus increasing search costs to consumers
    * government comes up with a centralised price-information mechanism that reduces these search costs
    * this mechanism has to be funded somehow
    - taxes/user pays?

    How do we determine if the total benefits of this mechanism would outweigh the costs, and how should it be funded?

  7. Jon on June 23rd, 2008 2:15 pm

    As price is just one part of the total cost of most goods (along with product quality, features, transaction costs, etc.), unless all of the components of cost can also be quantified and published too, it is not a given that this will result in a public benefit. Therefore, it does not follow logically that the current situation necessarily represents a market failure.

    In fact, the outcome of a reduction in information search costs relating to price alone (i.e. without considering other costs and benefits) could conceivably reduce competition. In other words, if publishing (and publicizing) prices reduced the level of non-price differentiation that would otherwise emerge in response to heterogeneous consumer preferences, it would not be in the public interest.