The Undercover Economist

Companies find it more profitable to increase prices (above the sale price) by a larger amount on an unpredictable basis than by a small amount in a predictable way.  Customers find it trouble some to avoid unpredictable price increases — and may not even notice them for lower-value goods — but easy to avoid predictable ones…

Have you noticed that supermarkets often charge ten times as much for fresh chili peppers in a package as for loose fresh chilies?  That’s because the typical customer buys such small quantities that he doesn’t think to check whether they cost four cents or forty.  Randomly tripling the price of a vegetable is a favorite trick: customers who notice the markup just buy a different vegetable that week; customers who don’t have self-targeted a whopping price rise. 

I once spotted a particularly inspired trick while on a search for potato chips.  My favorite brand was available on the top shelf in salt and pepper flavor and on the bottom shelf, just a few feet away, in other flavors, all the same size.  The top-shelf potato chips cost 25 percent more, and customers who reached for the top shelf demonstrated that they hadn’t made a price-comparison between two near-identical products in near-identical locations.  They were more interested in snacking.

That is from Tim Harford’s new The Undercover Economist: Exposing Why the Rich are Rich, the Poor are Poor — and Why You Can Never Buy a Decent Used Car (don’t trust Amazon, the release date is November, not January).  This book is one of the very best introductions to the economic way of thinking.   "Required Reading," says Steve Levitt, what better endorsement could you want?

Here is Tim’s home page, including his FT "Dear Economist" columns.  Here is Tim’s Private Sector Development Blog.  Here is Tim’s recent FT piece on Thomas Schelling.  Comments are open, in case you have other examples of comparable supermarket tricks.


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