Saturday, March 10, 2007

A Cure Worse Than the Disease

In today's WSJ there is a good article "A Penny Not Saved" about IPLs.

Some states like Michigan have an "Item Pricing Law" (IPL) that requires each item in a retail store to have its own individual price sticker, instead of simply having a price tag on the shelf like in most states. The argument for IPLs is that they are supposed to protect consumers from pricing errors, which occur about 1% of the time. However, since the average cost of overpricing is less than one cent per item, the potential benefits of IPLs are less than one cent per item!

The IPLs also have costs, because it is expensive and time consuming to put labels on each item. And it also makes changing prices more expensive -- meaning that stores are less likely to have sales of covered items. In a competitive industry like grocery retailing, any cost increase will translate into a price increase, and we would therefore expect IPLs to lead to higher prices.

How much higher? Research by the author suggests that groceries are 10% higher in IPL stores. Food represents about 14% of the average family's budget, so IPLs reduce the real incomes of families by more than 1%.

Question: How many other laws and regulations intended to be "pro-consumer" actually make consumers much worse off? Probably a lot!

9 Comments:

At 3/10/2007 12:25 PM, Anonymous Walt G. said...

A lot of people don't understand, or don’t want to understand, that the customer pays for everything.

We were in Florida last month and went to a restaurant to have dinner. It was a very nice place right on the ocean. When we got the menus, the other couple remarked that $18 for a cheese burger, fries, and a drink was too much money. I replied that we were not just paying for the meal; we were paying for the building, the expensive ocean-front property, and the ambience, too. They both became indignant and asked me why in the world that they should have to pay for that: they didn’t own it. I replied that the owner expected to make a profit on his business, and the profit came from the customers. Money did not just magically appear out of thin air.

I don’t think they liked my answer. Perhaps, I am not a very good dinner conversationalist. And, I guess some people are blissful being ignorant on how businesses operate. Why else would people clamor for increased business and corporate taxes and think that some “fairy godmother” is going to pay them?

 
At 3/10/2007 12:33 PM, Blogger Mark J. Perry said...

Amen, Brother.

 
At 3/10/2007 12:59 PM, Anonymous Anonymous said...

I wonder about Walt. G. ....does he have a ready response to EVERYTHING, at any time, everywhere? Is he alone alot?

 
At 3/10/2007 1:35 PM, Anonymous Walt G. said...

I may be alone alot, but I'm not afraid to put my name on my replies! What or who is an anonymous?

I am a prolific writer and probably do spend too much time writing. Thanks, I appreciate your concern. I don't spend a lot of time outside until warm weather.

I'm actually quiet in person, but I don't wear a mask in public to hide my identity there either.

 
At 3/10/2007 2:11 PM, Anonymous Anonymous said...

There are minimum markup laws in Wisconsin to protect consumers from Big Oil. That means Little Oil, the mom and pop gas stations, are guaranteed a nice profit out of my pocket.

 
At 3/10/2007 2:52 PM, Anonymous Victor said...

I have worked in a grocery store before, and I must admit that it takes allot of time to do this pricing, and price changes are a monstrous pain.

10% markup because of the pricing law seems a little high. Michigan is the only state with required pricing law, and the prices here seem to be the same as every place else. From my own personal experience, mistakes account for much more than 1% of the items I purchase.

What exactly hold the stores accountable for the prices that they have on the shelves? Do you think that the store immediately adjusts the price in the computer when they find a mistake? Do they look at the receipts that have gone through after they find a mistake and refund the difference to the customers that were overcharged?

I personally believe that a company should be penalized by these pricing mistakes. The Michigan Bounty Law allows the customer to benefit from the companies lack of correct pricing. Considering that the company is penalized, the company now has an immediate reason to get the amount charged right.

In general, I think that the individual pricing should be eliminated. But the penalty that is implemented for mistakes should be strengthened to give more incentive for accuracy.

One other thing.. When a store has a sale on an item, they do not have to put a lower price on the item that is for sale. They do not have to adjust the pricing stickers for sales or specials. The standard price is put on the item when it is stocked. They is no extra labor or hardship caused by sales.

 
At 3/11/2007 11:13 AM, Anonymous Bob Wright said...

So Anonymous writes - in a blog - complaining about walt g., who writes in a blog. whatever.

walt g:

please keep posting to this blog. I enjoy reading your perspective.

 
At 3/11/2007 12:01 PM, Anonymous Walt G. said...

Bob Wright,

Thanks. The owner of the blog knows who I am. And, he can both block and delete me if he chooses to do so. He can, and has, emailed me in the past.

I like to write, and I like to read.

I try to read material that differs from my viewpoint for two reasons: 1) Sometimes I use the other’s facts to change my opinions; and 2) Sometimes my opinions are strengthened by understanding the other side's viewpoint but not agreeing with them.

A lot of times I find that a perfectly well thought-out theory does not always work in the real world. Theories are black and white; however, real-world applications are usually a shade of gray. We can’t always assume that a “rational man” will be applying the theory to practice. Additionally, even a 95% success rate can leave 5 people out of 100 out in the cold. That’s not so bad unless you are one of the 5.

 
At 3/11/2007 12:25 PM, Anonymous Bob Wright said...

walt g.

I know that writing sharpens my thinking.

Putting my name on my thoughts makes me careful in what I say.

As I understand it, blogs are intended to facilitate a conversation between the readers of the blog.

For Anonymous to suggest that someone should not write in a blog is to completely miss the point of the blog in the first place.

 

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