Currently lost in all the excitement about Chinese spy balloons and Marjorie Taylor Greene discovering that the feds sent $5 billion to one Illinois elementary school to teach kids that being white is a bad thing is the announcement yesterday that Joe Biden is going after … junk fees … or zombie fees if you’re into the whole “Last of Us” thing.
I couldn’t say, “amen” any louder if I had Metallica’s sound system. There’s no end of things that can annoy the living bejesus out of you (if you let them), but this pervasive and ever-growing gaming of otherwise straightforward retail pricing is truly out of control. The Biden gang says specifically they’re after …
- excessive online concert, sporting event and entertainment ticket fees
- airline fees for families sitting together on flights
- exorbitant early termination fees for TV, phone and internet services
- surprise resort and destination fees
This is the kind of populist-oriented legislation you’d think would rally the masses and engender wide bi-partisan support. But I’m not going to get carried away with reckless hope. Lobbying pressure from the likes of Live Nation/Ticketmaster, Delta and United et al, Comcast and Las Vegas will likely convince those lawmakers perpetually giving lip service to “hard working Americans” that this idea will only suppress our great and wonderful entrepreneurial spirit, not to mention negatively impact shareholder value.
Simultaneous with reading about what they’re calling the Junk Fee Protection Act my wife was following a blow up on Next Door, the local community site usually overrun with stories of feral cats, porch pirates and baroque theories of gross mismanagement if not outright corruption by city administrators … in Edina, in our case. The kerfuffle was over mandatory, ill-defined fees creeping into the tabs at local restaurants. In other words, the zombie virus-like spread of “service fees” slapped on top of the cost of whatever you eat and drink … plus tip.
In our cozy corner of the world a restaurant/deli operation called Broders announced it was instituting a 15% “service and equity fee” on top of everyone’s order while still … you gotta love this … allowing patrons to tip another 15%, 18% or 25%. The Next Door trolls were not happy. And rightfully so.
However Broders and other venues want to ‘splain it, it’s tacky price gaming no different than that Vegas hotel you booked for $150 a night plus tax hitting you with a 30% “resort fee” as you hit the check out button. Or, to use another current example, Live Nation/Ticketmaster collecting an extra $20, $30, $40 in “service fees” on top of the $150 they’ve already charged you for booking that Kid Rock concert … via a computer.
What makes it all even more annoyingly laughable is the constant refrain that this fee-upon-fee-upon-tip scam is something they’re doing to benefit their overworked, underpaid staff in the back of the house. Because, you know, actually paying the busboys, salad choppers and dishwashers $18 – $20 an hour is an obligation that must fall upon the customer, not the restaurant’s owners.
And which it would under any rational, gaming-free system, where a business meets its cost of doing business, including compensation for employees, by … dare we say it out loud? … raising prices to cover all costs and show a profit. It’s an insane concept I concede. Likely a radical socialist conspiracy if Marjorie Taylor Greene gets wind of it. But until the private equity boys and hard-driving Type A business school grads picked and tossed their chump customers into the deep end of “fee world” pool it worked just fine.
Capitalism. Insane, I know.
Want a room in Vegas? Well, based on demand that’ll now cost you $180 a night. Don’t want to pay that? Fine. Stay out in Primm and drive in to catch the animatronic Grand Funk Railroad Tribute Band at the Sahara. Want a pound of prosciutto from Broder’s for your next elegant soiree? Well, based on the rising cost of hiring competent staff and everything, that’ll now cost you $16 instead of the $13 it was last year. If you want to tip the kid that wrapped it and rang you up another couple bucks, knock yourself out.
Just stop with the word salad explanations and the pretense that bullshit price gaming is the only fair way to sustain your business. And by that I mean gibberish like this from the owner of Broder’s: “We’re trying to create a compensation structure that looks different than it did before the pandemic … and strive for pay equity between front-of-house and back-of-house service members.”
To which I say, “No you’re not. You’re simply attaching yourself to an obnoxious trend that others have successfully got away with … until now.”
We had a $.73 ‘supply chain fee’ on our recent bill at Rascal’s in Rosemount. I think it was a $30 bill.
I’ve talked to a few friends in the restaurant business, and I think that they would generally agree with you. One of the problems with traditional style tipping has been that the wait staff often makes more $$ that the actual chef, not to mention the rest of the back of the house. So often owners want to eliminate tipping, replacing it with some type of a service fee, which they can distribute among all the staff (legally, they can’t touch tips, which go directly to servers).
Often they have tried to simply raise prices by 15% to 20% with no fees/tipping, but they say that they lose a huge percentage of business, because people then see their establishment as too expensive. A few restaurants have tried this, and all have quickly retreated.
Things are starting to change, mostly because restaurants are having trouble getting sufficient people to work as servers. That is why so many places are going to those models where you order on your phone using QR codes, etc. Basically, they are trying to eliminate service staff, which usually means eliminating tipping as well.
Pete: This … this morning from David Leonhardt at the Times:
Ticketmaster is especially aggressive about imposing fees.Paul Sakuma/Associated Press
A market failure
Sneaky fees have become a big part of America’s consumer economy.
Hertz charges almost $6 a day simply for using a toll transponder in a rental car. Marriott and Hilton add nightly “resort fees” to the bill even at hotels that nobody would consider to be resorts. American, Delta and United list one airfare when you first search for a seat — and then add charges for basic features like the ability to sit next to your spouse.
Ticketmaster is especially aggressive about imposing fees, as I experienced recently while buying two tickets to a football game. When I initially selected my seats on Ticketmaster’s online stadium map, they cost $48. The bill at checkout was more than one-third higher — $64.40.
President Biden has announced a crackdown on these fees (which his administration calls “junk fees”), and he devoted a section of his State of the Union address to them. “Look, junk fees may not matter to the very wealthy, but they matter to most other folks in homes like the one I grew up in,” he said Tuesday night. “I know how unfair it feels when a company overcharges you and gets away with it.”
Today, I want to explain why anybody is even worrying about this problem. After all, in a competitive capitalist economy like ours, shouldn’t the market have already solved it?
‘Sludge’
The market solution to sneaky fees seems straightforward. When Marriott starts charging $50 nightly “resort fees,” Hilton can call out its competitor and try to steal Marriott customers. And some companies do take this approach: Southwest Airlines advertises a “Bags Fly Free” policy, an obvious swipe at rivals.
But the mushrooming number of fees has made clear that competition does not usually eliminate the practice. Why not? Academic research has suggested that there are two main reasons.
First, human beings are not the efficiently rational machines that economic theory pretends they are. An entire branch of the field, behavioral economics, has sprung up in recent decades to make sense of our limited attention spans.
If you are familiar with the best-selling book “Thinking, Fast and Slow,” by Daniel Kahneman, you will recognize these ideas. We lead busy lives that keep us from analyzing every purchase, and we get distracted by salient but misleading information (like a low list price). Big companies, with the resources at their disposal, have learned to take advantage of these limitations. The economist Richard Thaler refers to practices like these as “sludge,” the evil counterpart to nudges that use behavioral economics to improve life.
True, one company could call out another for using sludge. But doing so often requires a complex marketing message that tries to persuade people to overcome their psychological instincts (like the appeal of a low list price). For that reason, Hilton can probably make more money by charging its own sneaky resort fees than by criticizing Marriott’s.
“Once some subset of hotels start charging these fees and generating a significant amount of revenue,” Bharat Ramamurti, a Biden adviser, told me, “that creates pressure on hotels to do this, or otherwise they’re getting left behind.”
No choices
The second major reason is monopoly power. In some markets, consumers don’t have much choice. Ticketmaster’s fees outrage many people. But I didn’t have any choice when I bought those football tickets. There was no rival service selling them.
In recent decades, many American industries have become more concentrated, partly because Washington became more lax about enforcing antitrust laws. Thomas Philippon, an N.Y.U. economist, has estimated that increased corporate concentration costs the typical American household more than $5,000 a year.
In some industries, sludge and monopoly power feed off each other. The small number of dominant internet providers, for instance, reduces the chances that a new entrant can design a business strategy around undercutting Comcast’s and Verizon’s sneaky fees. Those new entrants don’t exist. Comcast and Verizon have also figured out how to make the cancellation of internet service unpleasant and time-consuming. Airlines — another concentrated industry — use frequent-flier programs in a similar way, effectively punishing customers for switching to a different carrier.
Bharat Ramamurti, a Biden adviser.Oliver Contreras for The New York Times
The crackdown
The Biden administration is trying to address both causes of sneaky fees. On antitrust, it has adopted a policy more confrontational than that of any other administration in decades. That effort is in its early stages, without many big victories. Still, the administration does seem to be taking corporate concentration seriously.
As for the sludge itself, the administration has already taken steps to restrict a few examples, such as charges for late payments on credit cards. Biden has asked Congress to pass a law with stricter rules for other industries.
The administration’s bigger focus for now is on disclosure — requiring companies to tell consumers up front what the full cost will be. The Transportation Department has proposed such a rule for airlines.
Disclosure rules often have the advantage of being easier to enforce than outright bans on sneaky fees: If the government bans one kind of fee, companies can often repackage it in another way. “The best we could hope for is that consumers see the full costs transparently and that the government facilitates that,” Thaler, a Nobel laureate in economics, told me.
Ramamurti, the Biden adviser, put it this way: “We don’t want firms to be competing with each other to be hiding the true price of their product.”
How much of a difference Biden’s actions will make remains unclear. But the administration’s effort is based on an idea supported by a lot of evidence: The free market doesn’t solve all problems.
The U.S. government over the past half-century has moved toward an economic policy that often allows corporations to behave as they want, based on the theory that the free market will solve any excesses. The results haven’t been very good. During that same half century, economic growth has slowed, corporate profits have risen faster than wages, income inequality has soared, and living standards have grown slowly.
Sneaky fees turn out to be a small but telling example of why the modern economy isn’t working so well for many Americans.
The Grand Funk Railroad Tribute Band was animatronic? I thought they were real! American Band!