Grocery stores also routinely keep track of how fast each cashier is—by measuring items per minute. Such lanes could be staffed by the fastest cashiers and have dedicated baggers.
There are already ‘express’ lanes with maximum item limits, which achieve faster service by making sure the average time to process each customer is reduced. In that case, assigning faster cashiers make sense, but it seems like the ‘toll lane’ idea would achieve faster service primarily by being much less crowded than other lanes (that is, if the toll lane has a line the same length as other lanes, there would be no point going to it). So having your best cashier there just ensures they spend more time idle, thereby increasing the average time for all lanes.
I’ve actually considered leaving a note in my supermarket’s suggestion box, to the effect that there should be a $1 congestion charge to enter the parking lot between 10am and 5pm on Saturday and Sunday. The wait in line doesn’t bother me anywhere near as much as fruitlessly driving around the parking lot looking for someplace to park.
($1 is a starting point. The point being trial and error to hit the equilibrium of a moderately full parking lot at peak hours.)
I suspect this supermarket would actually not lose customers on net, because it is so much better than its competition that people previously deterred by the crowds would balance out people deterred by the congestion charge.
I share your sentiment, but you want to be a little bit careful doing this sort of thing by trial and error as there can be hysteresis effects, as with the Israeli day care experiment made famous by Freakonomics. You may find, for example, that offering sales that start after 5pm works better than charging a fee before 5pm, but only if you do it first.
Since grocery prices are pretty competitive and waits are pretty short currently, this seems more likely to exist as a discount for waiting than as a surcharge for being faster. It’s not clear to me that offering that option benefits the grocery store.
this seems more likely to exist as a discount for waiting than as a surcharge for being faster
What does this mean? That it would be better for a store to have a sole 5% discount lane and no other special lanes than a 5% surcharge lane, and that it would be better for a store to have no special lanes than a 5% discount lane?
I am suggesting that a grocery store could a) unilaterally b) bring the situation closer to a Pareto optimum and c) capture much of the benefit.
To the extent consumers are rational, the store pushes off the decision to commit to a faster or cheaper store until the consumer has more information. To the extent they are irrational, it offers them an impulse purchase that is easy to rationalize.
Suppose the local grocery store offers this option.
Now, whenever* you don’t choose the toll lane, you’ll be struck by how long the non-toll lines are. You may even wonder if it’s a plot to make you pay 5% extra at the register and thus display lower prices on the shelves, or maybe to just waste your time if you don’t want to pay the extra 5%.** You don’t recall waits at the other grocery store being this torturous, and so you start going there instead.***
*Offer subject to availability and confirmation bias.
**Offer subject to attribution bias.
***Indeed, you’re giving other grocery stores a great advertising hook to springboard off of: “our cashiers are fast, friendly, and free!”
The grocery store isn’t offering a new, supplemental service; they’re charging you for quality service rather than mediocre service. (A more loaded way to put it is that they’re ransoming your time back to you.) I suspect customers would resent that quite a bit.
The comment about discounts was because 5% is a lot when it comes to groceries (typical profit margins are around 1%), and charging people just 5 cents per plastic bag causes plastic bag usage rates to drop significantly. It seems like people would go to a different grocery store to save the 5%, and so prices would have to be lowered to compensate- which means that the grocery store is now paying you to wait, which is further from the Pareto optimum.
The new, supplemental service that targets time-starved customers is grocery delivery, which had a number of high-profile failures. The survivors are growing, but it seems likely that perhaps 5-10% of customers are time-starved enough to pay extra. If you only have ~5 cashiers working at a particular time, are you going to put one of them on the toll lane, significantly decreasing throughput?
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. (I can’t remember the last time I had to wait more than 2 minutes to check out.)
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).
Grocery stores should have a lane where they charge more, such as 5% more per item. It would be like a toll lane for people in a hurry.
Grocery stores also routinely keep track of how fast each cashier is—by measuring items per minute. Such lanes could be staffed by the fastest cashiers and have dedicated baggers.
There are already ‘express’ lanes with maximum item limits, which achieve faster service by making sure the average time to process each customer is reduced. In that case, assigning faster cashiers make sense, but it seems like the ‘toll lane’ idea would achieve faster service primarily by being much less crowded than other lanes (that is, if the toll lane has a line the same length as other lanes, there would be no point going to it). So having your best cashier there just ensures they spend more time idle, thereby increasing the average time for all lanes.
Obvious corollary: bribing the maître d’.
I’ve actually considered leaving a note in my supermarket’s suggestion box, to the effect that there should be a $1 congestion charge to enter the parking lot between 10am and 5pm on Saturday and Sunday. The wait in line doesn’t bother me anywhere near as much as fruitlessly driving around the parking lot looking for someplace to park.
($1 is a starting point. The point being trial and error to hit the equilibrium of a moderately full parking lot at peak hours.)
I suspect this supermarket would actually not lose customers on net, because it is so much better than its competition that people previously deterred by the crowds would balance out people deterred by the congestion charge.
I share your sentiment, but you want to be a little bit careful doing this sort of thing by trial and error as there can be hysteresis effects, as with the Israeli day care experiment made famous by Freakonomics. You may find, for example, that offering sales that start after 5pm works better than charging a fee before 5pm, but only if you do it first.
People value fairness very highly. Unless cultural norm allowing this particular kind of unfairness existed, people would be strongly opposed to this.
Since grocery prices are pretty competitive and waits are pretty short currently, this seems more likely to exist as a discount for waiting than as a surcharge for being faster. It’s not clear to me that offering that option benefits the grocery store.
What does this mean? That it would be better for a store to have a sole 5% discount lane and no other special lanes than a 5% surcharge lane, and that it would be better for a store to have no special lanes than a 5% discount lane?
I am suggesting that a grocery store could a) unilaterally b) bring the situation closer to a Pareto optimum and c) capture much of the benefit.
To the extent consumers are rational, the store pushes off the decision to commit to a faster or cheaper store until the consumer has more information. To the extent they are irrational, it offers them an impulse purchase that is easy to rationalize.
Suppose the local grocery store offers this option.
Now, whenever* you don’t choose the toll lane, you’ll be struck by how long the non-toll lines are. You may even wonder if it’s a plot to make you pay 5% extra at the register and thus display lower prices on the shelves, or maybe to just waste your time if you don’t want to pay the extra 5%.** You don’t recall waits at the other grocery store being this torturous, and so you start going there instead.***
*Offer subject to availability and confirmation bias.
**Offer subject to attribution bias.
***Indeed, you’re giving other grocery stores a great advertising hook to springboard off of: “our cashiers are fast, friendly, and free!”
The grocery store isn’t offering a new, supplemental service; they’re charging you for quality service rather than mediocre service. (A more loaded way to put it is that they’re ransoming your time back to you.) I suspect customers would resent that quite a bit.
The comment about discounts was because 5% is a lot when it comes to groceries (typical profit margins are around 1%), and charging people just 5 cents per plastic bag causes plastic bag usage rates to drop significantly. It seems like people would go to a different grocery store to save the 5%, and so prices would have to be lowered to compensate- which means that the grocery store is now paying you to wait, which is further from the Pareto optimum.
The new, supplemental service that targets time-starved customers is grocery delivery, which had a number of high-profile failures. The survivors are growing, but it seems likely that perhaps 5-10% of customers are time-starved enough to pay extra. If you only have ~5 cashiers working at a particular time, are you going to put one of them on the toll lane, significantly decreasing throughput?
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. (I can’t remember the last time I had to wait more than 2 minutes to check out.)
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).