The comment about discounts was because 5% is a lot when it comes to groceries (typical profit margins are around 1%)
I can think of several reasons why typical markup rates would be relevant, but not for why typical profit margins would be. I suspect you looked up “profit” when what was doing the work in your implicit arguments was “markup”. 5% then ceases to be thought of as 500% of 1% and becomes thought of as a more reasonable 33% of ~15% or so.
charging people just 5 cents per plastic bag causes plastic bag usage rates to drop significantly.
This is because humans are irrational about free things, rather than the sum of money involved. See Arieli’s Lindt/Hersheys experiment. It is possible they see checking out as free, but also possible they see the price as a surcharge on each item. I don’t know.
Also, I think your emphasis on what you see wrong with a 5% toll violates the spirit of least convenient possible world, as I used that as an example of what I thought would approximately achieve the ends I had in mind.
perhaps 5-10% of customers are time-starved enough to pay extra.
Rather than create something entirely new, with different advantages and disadvantages (e.g. someone has to be there to take in the groceries, but one doesn’t have to go to the store), I am discussing a small improvement to an existing structure. I don’t really buy the analogy because the point of this is that people could decide what to do after going to the store that has choices and looking at the lines. People like to keep their options open. They don’t have to decide yet how impatient, hungry, or busy they are.
There’s also the question of the time calculation from the customer’s point of view. Suppose they save 5 minutes; at $8 an hour that comes out to 67 cents. If the order costs more than $30, that’s not worthwhile.
Here you predict people will be rational, while I predict they will be impatient for an immediate reward. I also think orders of less than $30 and people who make more than $8/hour are pretty common.
I can’t remember the last time I had to wait more than 2 minutes to check out.
To this I’m going to invoke LCPW again. From 5pm to 7pm where I live, lines are long. The toll lane doesn’t have to be active at 10am.
I can think of several reasons why typical markup rates would be relevant, but not for why typical profit margins would be. I suspect you looked up “profit” when what was doing the work in your implicit arguments was “markup”.
Profit margins strike me as a better measure of how competitive prices are; markup rates are necessarily higher because of the costs of running the store. To put it another way, high profit margins are a better sign of low competition than high markups.
The argument I was making was that grocery store customers are not a captive market, and are sensitive to price increases (and probably insults).
Also, I think your emphasis on what you see wrong with a 5% toll violates the spirit of least convenient possible world, as I used that as an example of what I thought would approximately achieve the ends I had in mind.
Since I’m pointing out potential downsides of your suggestion, isn’t invoking LCPW for me invoking MCPW for yourself?
I am discussing a small improvement to an existing structure.
I don’t really buy the analogy because the point of this is that people could decide what to do after going to the store that has choices and looking at the lines. People like to keep their options open.
The original examples of extra choices making people worse off come from grocery stores (though choice paralysis is different from the game theoretic concerns I’m making).
high profit margins are a better sign of low competition than high markups.
I see. High competition does not strongly imply high price competition with other factors such as service fluctuating little, I think there is significant service competition in the current market.
Since I’m pointing out potential downsides of your suggestion, isn’t invoking LCPW for me invoking MCPW for yourself?
It depends. ”...are you going to put one of them on the toll lane, significantly decreasing throughput?” and “I can’t remember the last time I had to wait more than 2 minutes to check out,” seem like implausible over-interpretations of my suggestion, as if I meant for it to apply at all times and in all places regardless of store layout and business etc. “5% is a lot when it comes to groceries” is much more fair.
You are suggesting a small change to an existing structure.
This is a good point. I said “improvement” because increasing choice is usually, all else equal, an improvement, though it isn’t always. Here it sort of obviously isn’t a pure improvement, but the cost to consumers (assuming store prices are constant) that they pay for a chance to check out much faster is a slightly slower checkout if they don’t so choose (i.e. the toll line might be half as long as the others, distributing those it would have were it free among many other lanes).
To have consumers think they are worse off, it isn’t plausible to think that their free lanes have noticeably longer lines than they would have were all lanes free, so you rightfully didn’t say they would—particularly if the store loses customers. Instead you said consumers would irrationally disfavor the system—which is perfectly fair. In particular, you said they would resent being in a longer line compared to those in the toll lane (rather than compared to the line they would have been were all free, the rational comparison that people might not make), and that they would have a negative feeling they would associate with the store, despite the lines at other stores being just as long.
extra choices making people worse off
While choices make people worse off, they are still biased towards preserving their choices, so I think this factor would still benefit the supermarkets, though this part of it wouldn’t simply be from creating value and taking some of it rather than have consumers take all of it.
I think you are overly caught up in the subject matter here, which disguises how little those examples are relevant here, a great analogy furthering some of your points is from traffic showing Braess’s Paradox.
One important thing to track is if either of us is “cheating” in a general way I will try to describe by example. It would be cheating to make certain simultaneous claims, such as that 5% isn’t enough that people would mind paying it but that it would also be enough to make the toll lane noticeably shorter, or that free lanes would be longer under the toll system than they would be otherwise and that many people would avoid the toll store,
There is something very worthwhile to point out, and that is that people would favor or disfavor the store, and for other reasons the store would benefit or lose, from three types of influences. The first is people’s simply rational natures, the second is people’s simply irrational natures, and the third is people’s strategically rational causally irrational mindsets. That is not a technical term so if anyone would tell me what it is I would appreciate that. See this great post and TDT/UDT.
The store with a toll lane during rush hour (that at least does not make throughput worse, though for many stores that would be improved by having some lines consistently longer than others, and for other stores that would make throughput worse), and how the toll policy changes things from the status quo:
I) Rational decision making: Pros: a) Consumers get to put off deciding whether or not to pay a premium for faster service until after they see how much time it too them to reach the market, shop, and observe the lines. b) Free lanes are barely longer with one toll lane existing than they would have been were all free unless the policy greatly increases store traffic, which would simply be good for the store, which has the power to implement the policy unilaterally (unless people go to this store whenever they need just a few things, and the cashiers’ time is taken up largely by individuals paying, such that store profit comes from people buying many items at once, and people who need to buy many things go to other stores...or something else I haven’t considered). c) Rich people, whose time is worth the cost, and who buy more expensive things and with fewer coupons, might favor the toll store during rush hour. Cons: a) Free lines are slightly longer, which would particularly not be worth it if store prices were unchanged despite increased profit from the toll lane.
II) Irrational decision making: Pros: a) Consumers are biased towards keeping options open, and would choose to put off deciding between spending more time or money. b) Consumers in line have to resist their impatience every second they are in the longer line, and have many opportunities to pay the store more, even if they told themselves they were going to this store and paying regularly. Cons: a) Consumers resent paying for something they think of as free, such as checking out. b) Consumers might compare their experience in the more crowded free lane to that of those in the toll lane and have negative feelings about the store, rather than properly comparing that experience to the lines had all lanes in that store been free or the lines in other stores.
III) Game theoretic decision making Cons: a) Consumers might punish institutions that raise prices or attempt to influence them by taking advantage of their irrational behavior (i.e. manipulating them).
I can think of several reasons why typical markup rates would be relevant, but not for why typical profit margins would be. I suspect you looked up “profit” when what was doing the work in your implicit arguments was “markup”. 5% then ceases to be thought of as 500% of 1% and becomes thought of as a more reasonable 33% of ~15% or so.
This is because humans are irrational about free things, rather than the sum of money involved. See Arieli’s Lindt/Hersheys experiment. It is possible they see checking out as free, but also possible they see the price as a surcharge on each item. I don’t know.
Also, I think your emphasis on what you see wrong with a 5% toll violates the spirit of least convenient possible world, as I used that as an example of what I thought would approximately achieve the ends I had in mind.
Rather than create something entirely new, with different advantages and disadvantages (e.g. someone has to be there to take in the groceries, but one doesn’t have to go to the store), I am discussing a small improvement to an existing structure. I don’t really buy the analogy because the point of this is that people could decide what to do after going to the store that has choices and looking at the lines. People like to keep their options open. They don’t have to decide yet how impatient, hungry, or busy they are.
Here you predict people will be rational, while I predict they will be impatient for an immediate reward. I also think orders of less than $30 and people who make more than $8/hour are pretty common.
To this I’m going to invoke LCPW again. From 5pm to 7pm where I live, lines are long. The toll lane doesn’t have to be active at 10am.
Profit margins strike me as a better measure of how competitive prices are; markup rates are necessarily higher because of the costs of running the store. To put it another way, high profit margins are a better sign of low competition than high markups.
The argument I was making was that grocery store customers are not a captive market, and are sensitive to price increases (and probably insults).
Since I’m pointing out potential downsides of your suggestion, isn’t invoking LCPW for me invoking MCPW for yourself?
You are suggesting a small change to an existing structure. It has both positive and negative effects.
The original examples of extra choices making people worse off come from grocery stores (though choice paralysis is different from the game theoretic concerns I’m making).
I see. High competition does not strongly imply high price competition with other factors such as service fluctuating little, I think there is significant service competition in the current market.
It depends. ”...are you going to put one of them on the toll lane, significantly decreasing throughput?” and “I can’t remember the last time I had to wait more than 2 minutes to check out,” seem like implausible over-interpretations of my suggestion, as if I meant for it to apply at all times and in all places regardless of store layout and business etc. “5% is a lot when it comes to groceries” is much more fair.
This is a good point. I said “improvement” because increasing choice is usually, all else equal, an improvement, though it isn’t always. Here it sort of obviously isn’t a pure improvement, but the cost to consumers (assuming store prices are constant) that they pay for a chance to check out much faster is a slightly slower checkout if they don’t so choose (i.e. the toll line might be half as long as the others, distributing those it would have were it free among many other lanes).
To have consumers think they are worse off, it isn’t plausible to think that their free lanes have noticeably longer lines than they would have were all lanes free, so you rightfully didn’t say they would—particularly if the store loses customers. Instead you said consumers would irrationally disfavor the system—which is perfectly fair. In particular, you said they would resent being in a longer line compared to those in the toll lane (rather than compared to the line they would have been were all free, the rational comparison that people might not make), and that they would have a negative feeling they would associate with the store, despite the lines at other stores being just as long.
While choices make people worse off, they are still biased towards preserving their choices, so I think this factor would still benefit the supermarkets, though this part of it wouldn’t simply be from creating value and taking some of it rather than have consumers take all of it.
I think you are overly caught up in the subject matter here, which disguises how little those examples are relevant here, a great analogy furthering some of your points is from traffic showing Braess’s Paradox.
One important thing to track is if either of us is “cheating” in a general way I will try to describe by example. It would be cheating to make certain simultaneous claims, such as that 5% isn’t enough that people would mind paying it but that it would also be enough to make the toll lane noticeably shorter, or that free lanes would be longer under the toll system than they would be otherwise and that many people would avoid the toll store,
There is something very worthwhile to point out, and that is that people would favor or disfavor the store, and for other reasons the store would benefit or lose, from three types of influences. The first is people’s simply rational natures, the second is people’s simply irrational natures, and the third is people’s strategically rational causally irrational mindsets. That is not a technical term so if anyone would tell me what it is I would appreciate that. See this great post and TDT/UDT.
The store with a toll lane during rush hour (that at least does not make throughput worse, though for many stores that would be improved by having some lines consistently longer than others, and for other stores that would make throughput worse), and how the toll policy changes things from the status quo:
I) Rational decision making:
Pros:
a) Consumers get to put off deciding whether or not to pay a premium for faster service until after they see how much time it too them to reach the market, shop, and observe the lines.
b) Free lanes are barely longer with one toll lane existing than they would have been were all free unless the policy greatly increases store traffic, which would simply be good for the store, which has the power to implement the policy unilaterally (unless people go to this store whenever they need just a few things, and the cashiers’ time is taken up largely by individuals paying, such that store profit comes from people buying many items at once, and people who need to buy many things go to other stores...or something else I haven’t considered).
c) Rich people, whose time is worth the cost, and who buy more expensive things and with fewer coupons, might favor the toll store during rush hour.
Cons:
a) Free lines are slightly longer, which would particularly not be worth it if store prices were unchanged despite increased profit from the toll lane.
II) Irrational decision making:
Pros:
a) Consumers are biased towards keeping options open, and would choose to put off deciding between spending more time or money.
b) Consumers in line have to resist their impatience every second they are in the longer line, and have many opportunities to pay the store more, even if they told themselves they were going to this store and paying regularly.
Cons:
a) Consumers resent paying for something they think of as free, such as checking out.
b) Consumers might compare their experience in the more crowded free lane to that of those in the toll lane and have negative feelings about the store, rather than properly comparing that experience to the lines had all lanes in that store been free or the lines in other stores.
III) Game theoretic decision making
Cons:
a) Consumers might punish institutions that raise prices or attempt to influence them by taking advantage of their irrational behavior (i.e. manipulating them).