In the Interest of Fairness

So, I used Apple as a whipping boy the other day, because the company sometimes charges you to speak to customer service.

It turns out that iPhone support costs money, but iTunes support doesn't. Why that is, I don't know. Because my problem involved downloading a song to my phone, it could fall under either umbrella.

I was able to figure out the solution on my own, but today I got a very friendly, very thoughtful, and very thorough e-mail back from iTunes support. And they're even giving me two free song credits for my troubles.

This makes me happy as a customer, but it makes my prior blog post a bit less compelling now.

Paying Extra for Customer Support

I recently downloaded "Everlong" by Foo Fighters on my iPhone. Except, try as I might, I kept getting the following error message:

I was trying to file for support on the Apple Web site, when I learned that it costs $29 to talk to Apple if it's been more than 90 days since you bought the product. This led me to issuing the following tweet:

Eventually, I read around online and figured out that the problem could be rectified by downloading the song to my computer and going through the arduous process of syncing my phone through iTunes. So, now, it works, but I'm out an hour of effort and frustration.

A few observations:

(1) Some economists would point out that the "rational" course of action would have been to just buy the song again, as 99 cents is much cheaper than the frustration of fixing the problem. Incidentally, these same economists are morons.

(2) We really don't have much leverage with companies, do we? I can say whatever I want, but my threat to boycott Apple is an empty one. There's nothing close to the iPhone on the market, as far as I'm concerned.

(3) In theory, we're all better off if companies can charge different customers different rates, based on the cost of providing services to them. (I made this point earlier when talking about airlines.) It's probably good that the people who contact customer service all the time should pay more than the people who don't, but it's just so enraging when the product doesn't work and — oh, guess what? – you have to pay the company to tell them about it.

Musings on Dry Cleaning

Why does it cost $2 to dry-clean a shirt, but $3.50 to dry-clean a tie?

Also, I've discovered first hand why few people wear white ties.

Grocery Store Waste Is Good

CC photo from Steve Hopson on Flickr.

Farmers, restaurants and supermarkets throw away millions of tons of edible food each year at a time when a growing number of Californians struggle to put food on the table.

State studies have found that more than six million tons of food products are dumped annually, enough to fill the Staples Center in Los Angeles 35 times over. Food is the largest single source of waste in California, making up 15.5 percent of the Golden State’s waste stream, according to the California Integrated Waste Management Board.

The above figures come from a partisan source, but no one is disputing the fact that grocery stores throw away a lot of expired food.

But is the waste bad? How could stores be set up to never waste perishable foods?

If stores and farmers could perfectly predict demand from week to week far ahead of time, there would be no waste. One week, customers at a given store would want 213 bunches of bananas, and that store would have stocked exactly 213. Obviously, this is not realistic. And even with omniscient grocery stores, consumers would still do a fair bit of throwing away themselves.

Another way would be to limit supply to the bare minimum. Suppose that demand for bananas at a given grocery store fluctuated between 120 and 300 bunches of bananas each week. To never throw away a rotten banana, the store would stock only 120 bunches each week.

If only one store in an area did this, the store would forgo many profitable sales, as its banana-spurned customers shopped elsewhere. If all stores in the area did this, the price of bananas would skyrocket. In either case, farmers and stores would have every incentive to increase production and therefore make more money. Depending on the underlying distribution of weekly banana demand, perhaps our hypothetical store should stock 250 bunches a week. Sometimes demand will fall short and bananas will go bad, but the strategy will be more profitable and consumers will be better off.

As it is now, the grocery store can change prices to help equate supply and demand. If the store has a batch of bananas about to expire, suddenly there's a sale on bananas. However, bananas are already extremely cheap, so customers are only sensitive to price changes up to a point. Eventually, it's cheaper to throw bananas away than to sell them for a penny (or even for negative prices; i.e., paying customers to take them). And there's nothing wrong with that, because the store tolerates a few rotten bananas in some weeks for higher profits in other weeks.

Would I Have Opposed Nutrition Facts Labels?

CC image from ericskiff on Flickr.

Nutrition Facts labels have been required on most foods in U.S. grocery stores since 1990. I was 4 years old at the time, but I can just picture the little economist inside me opposing the policy.

I would have raised all sorts of arguments about how we shouldn't make it harder or more expensive for firms to do business and how the labeling law was creating a barrier to entry that many food producers could not overcome, resulting in a less diverse grocery store selection. I'd use a bootleggers and Baptists analogy, which involves two morally opposed groups agreeing on a policy for different reasons. Health advocates would support the ban for obvious reasons, but so would corporate food manufacturers, which would now face less competition and thus be able to charge higher prices.

I've been mildly opposed to New York City's law that calorie counts be displayed on restaurant menus for much the same reasons, but perhaps I shouldn't be. The sacrifices required to implement Nutrition Facts labels seem well worth it in retrospect, because they have enabled consumers to make better decisions. This information gain has put pressure on food producers to improve the health content of their products or at least offer healthy alternatives.

One more devil's advocate point: as I said in my prior post, we have to measure the value of something by how much better it is over the next-best alternative. Without Nutrition Facts labels, most people would still know that an apple is healthier than a candy bar, even if they can't quantify the calories, cholesterol, or other parameters involved. How much does knowing the hard numbers really improve health outcomes?

Mystery of the eBay Overbids Solved?

I bought another gift certificate off eBay for barely under face value, which spurred me to ask the seller what I was wondering about in a post a few months ago: why do gift certificates often sell for above face value?

The seller gave me this insightful response:

Ebay issues discount vouchers to buyers like 5 % or 10 % off. So buyers bid upto $105. Depends upon the terms and conditions of the voucher and their necessity.

That seems to make sense.

Help Amazon Sell Kindle Books and Earn $0!

Many Web sites, including this one, earn commissions when they refer customers to Amazon.com who end up purchasing items. Last week, I noticed that I earned a 0% referral fee for helping Amazon sell a Kindle book, netting the company about $9. I wrote to Amazon, and here's the response I got back:

Hello,

At this time, Kindle Books are excluded as Qualifying Products. While we don't pay advertising fees on Kindle Books, we continue to pay a 10% advertising fee on all qualifying Kindle reader sales and Kindle magazine and blog subscriptions referred to us.

We appreciate your understanding.

Kindle books are a loss leader (here's a good discussion from Newsweek). In other words, Amazon loses money on each Kindle book it sells in hopes of getting people to buy Kindles at a hefty markup. Maybe the economics of ebooks will change someday, but for now, it's understandable that Amazon doesn't want its partners to push sales of Kindle books to people who already own Kindles, hence the 0% referral fee.

However, Amazon partners can't control whether the customer will buy the Kindle or the print version. If 50% of the people you refer end up buying the Kindle version, then the nominal 4% referral fee you earn on book sales effectively becomes 2%. (This is ignoring some pricing differences and the fact that the existence of the Kindle increases overall demand for books, securing some sales that otherwise wouldn't have been made.) This decreases the expected returns to hawking Amazon's wares, which should in turn reduce the number of referrals for Amazon books, both print and Kindle versions.

UPDATE 5/4: Apparently Amazon has changed course.

Does Ebay Shipping Hurt the Environment?

A recent New York Times story explores how eBay is trying to market an environmental appeal for buying used goods. The story ends with some economic discussion:

EBay hired Cooler, a company that calculates carbon footprints, to determine how much carbon shoppers save by buying something used instead of new. They say that the leather handbag, for example, saves as much energy as a flight from London to Paris.

Cooler calculated the total cost of creating a new item, including materials and manufacturing, and factored in the cost of packaging and shipping eBay items via fuel-guzzling planes or cars, Ms. Skoczlas Cole said.

I doubt that the shipping of eBay items hurts the environment much, on the margin.

New items also have to be shipped: from the manufacturer to the retailer and from the retailer to the customer's home. It's unclear that shipping used items requires more fuel, so a shift from new goods to eBay goods isn't necessarily bad for the environment.

Additionally, shipping is dominated by fixed costs--a certain number of trucks and delivery routes exist regardless of whether you send your item, so mailing one more package probably isn't going to burn more gas.

Coinstar by Mail: Could It Work?

CC photo by justj0000lie on Flickr.

Coinstar kiosks can be seen in grocery stores nationwide, converting coins to cash vouchers. For many people, the convenience of dumping a jar of coins into a machine is well worth the 8.9% counting fee to avoid the chore of counting coins by hand, wrapping them, and bringing them to the bank. Customers can also avoid the fee by instead getting a gift certificate for the full amount to one of several retailers. 

Could Coinstar take convenience one step further? Why should customers go to the grocery store when they could mail their coins directly to Coinstar? If this sounds absurd, let's not underestimate American laziness. Many people would rather order a book from Amazon than pick it up at their local bookstore, even if it means waiting a few days. Brick and mortar video rental stores like Blockbuster are in danger of becoming extinct because so many people would rather mail their DVDs back and forth to Netflix. So why not mail coins?

Would this be cost effective? The biggest USPS flat-rate box available measures 12" x 12" x 5 1/2", or a volume of 792 cubic inches. It ships for $14.95 domestically (the price includes the cost of the box), and there is a weight limit of 70 pounds.

The number of coins that can fit into such a box is restricted both by weight and by volume. To get a rough estimate, let's consider that a quarter has a diameter of 24.26 mm and a thickness of 1.75 mm. This translate to a volume of 0.0493 cubic inches per quarter. This volume divides into the box volume 16,000 times. So 16,000 quarters could theoretically fit, if we ignore weight considerations and the fact quarters are round and thus would not stack evenly.

A quarter weighs 5.670 grams, and thus 5,600 quarters would weigh 70 pounds. This amount of quarters would easily fit into the box, as demonstrated above, so the maximum amount of quarters one could ship in such a box is 5,600 (worth $1,400).

A Hungarian mathematician has calculated the distribution of coins in an average coin jar. He concludes that the average value of a pound of random coins is $12.96. About 100 coins weigh 1 pound. So theoretically anything between 150 coins (enough to cover the cost of the postage) and 7,000 coins (the most that will fit in the box) would net the customer a positive return and, if the coins number in the thousands, a substantial return ($12.96 per pound times 70 pounds is $907).

Coinstar could send a flat-rate box to customers relatively cheaply but insist on prepayment of the return shipping, so that only those with enough coins will request a box. Enough people might be willing to pay for the shipping if it means getting hundreds of dollars back for their coins; a fee of $14.95 quickly becomes less substantial in percentage terms as the number of coins grows.

Why Can't I Sell My Right to Return a Product?

If you're sure that you're gonna to love the Ghostbusters game for Wii, why can't you promise the store you won't return it and thus be entitled to a discount?

At most stores in America, especially the large chains, we buy with the understanding that we can get a refund or return the product if it doesn't work or doesn't fit. Or for any reason, really.

Why can't I forgo this right and get a discount? If I want to buy a video game from Best Buy--and assume all the risks myself that it won't work or that I won't like it--why can't I sell away my right for a refund? Because Best Buy now would have a higher expected profit from the sale, it should be willing to part with the game at a lower price.

For this analysis, it's crucially important whether handling returns is more of a fixed-cost or a marginal-cost endeavor.

There are fixed costs to setting aside space in the store for a returns department, staffing it, and setting up a computer system to handle the returned items. Inspecting and reshelving the items require resources, but once a staff is in place to do these tasks, each additional item doesn't cost the company more money.

A store also faces marginal costs on each return. A returned item may have to be repackaged. It may have to be refurbished. It may have to be discounted, as it is now somehow fundamentally different from a "new" product.

Whichever of these effects is strongest will determine whether a store would benefit from buying the "no-return" right from customers willing to sell it. If the fixed cost effects dominate, then eliminating the possibility of my one return isn't going to save the company any money. But, on the other hand, if most of the costs are marginal, the store may welcome the reduced chance of having to pay for repackaging or refurbishing.

I wonder if such a policy would suffer from adverse selection. To briefly explain the concept, take an example from the insurance world: among young people, only those most likely to get sick are going to be willing to pay for health insurance. And these are precisely the kind of people that the insurance company wants to avoid insuring. If stores adopted the above policy, only the people most likely to return items will pay for this right. However, it seems that the ability to have the non-returners self-select can make the store more competitive by offering such people a lower price, while assuming all the normal risks with the others (because, of course, most products won't be returned anyway).

An argument could be made that such a system already exists with secondary markets. For instance, instead of buying a book new on Amazon--with all of its guarantees of shipping speed and its liberal return policy--I could save a few dollars by buying the book used and hoping that it will arrive on time and will not have excessive highlights or other defects.

If Amazon Can't Advertise Its Low Prices, Why Bother Setting Them?

For this home theater system, Amazon is legally prohibited from displaying its price.

From the New York Times:

Where's the price?

On some pages of e-commerce sites selling products like televisions, digital cameras and jewelry, a critical piece of information is conspicuously missing: the price tag.

To see how much these items cost, shoppers must add the merchandise to their shopping carts — in effect, taking it up to the virtual register for a price check.

The missing prices are part of a larger battle sweeping the world of e-commerce. Wary of the Internet’s tendency to relentlessly drive down prices, major brands and manufacturers — and now, book publishers — are striking back, deploying a variety of tactics and tools to control how their products are presented and priced online.

...

Manufacturers consider the product pages on sites like eBay and Amazon.com to be ads, and they complain whenever e-commerce sites set prices below the minimum price.

This leads the sites to replace prices with notes that say things like “To see our price, add this item to your cart.” One day last week, prices were missing on Amazon.com for an array of products like the Milwaukee Sub-Compact Driver drill kit, a Movado men’s Esperanza watch and an Onkyo 7.2-channel home theater receiver.

Setting aside how this mandate by manufacturers no doubt hurts consumers, I'm interested why Amazon and other retailers don't just charge whatever the advertised minimum is. Going any lower seems counterproductive, as it triggers the mysterious "To see our price, add this item to your cart. You can always remove it later" message and this pop-up.

Many customers will no doubt be confused by this process or think it's some sort of scam, and thus walk away.

Amazon sells many books and other items because of its low prices, but low prices are only effective if customers know about them. I would argue that showing whatever the advertising minimum is would generate more sales than charging a lower price that customers can't see, as the latter adds a layer of transactions costs to the purchase.

It seems very unlikely that customers will add the same item to their virtual carts on several different sites in order to compare prices and then buy the item wherever it's cheapest.

D.C. Bag Fees Do Indeed Hurt Merchants

One D.C. council member is amazed at the notion that the 5-cent fee for plastic bags may be hurting retailers (Washington Post):

Council member Tommy Wells (D-Ward 6), the sponsor of the bill, said the regulations are closely aligned with the legislation the council passed in June.

However, Wells is concerned about a provision in the bill calling for a study on whether the city should make a hardship exemption for "certain types of retail establishments." Wells said he's baffled by the provision because the tax doesn't cost the businesses any money.

"I have not heard it being a hardship on retail establishments," he said. "There has been some customer concerns, but it seems since the fee is charged to the customer and not the business, that really doesn't make any sense," Wells said.

Let's be clear: Anything that makes it more inconvenient or expensive for your customers to shop at your store hurts your business.

To start with a more abstract example, imagine that a city institutes a "Safeway tax," so that all Safeway customers have to pay a 50-cent fee that they don't have to pay elsewhere. Or imagine that Safeway's parking lots must by law be located several blocks away from the stores. In both cases, the store's customers are the ones paying the price (in money in the former case and in inconvenience in the latter), but arguing that these proposals wouldn't hurt Safeway is asinine.

The D.C. bag tax functions the same way: it forces customers to either pay a fine or suffer a major inconvenience. Either way, it makes grocery shopping in the District less pleasant.

The magic of capitalism is the ability to find substitutes when the price of one good rises relative to others. Many customers will instead do their grocery shopping in Maryland or Virginia. Additionally, many people will now find grocery shopping more of a chore and will instead eat out more.

To combat some of these effects, some D.C. stores are now giving away reusable bags. Of course, this is an additional expense that they did not face previously.

By the way, I've written previously on this topic here.

Haggling at Macy's: A Marginal Analysis

CC image courtesy of Phillie Casablanca from Flickr.

A recent Washington Post article describes how people have been increasingly empowered to haggle at stories like Macy's. Consumer not only are looking to stretch their dollars further in the recession but also can make credible threats to brick and mortar stores that they will shop elsewhere. This is exceptionally painful for places like shoe stores, where customers can make sure that the product fits and feels comfortable before threatening to buy it online.

The reporter's narrative begins:

The price tag on the smooth pair of Cole Haan loafers at Macy's said $148. I considered that a fair opening bid. Standing across from the salesman and the cash register, I said, "Can you knock off 25 percent?"

The salesman said, "Can't do it." But I pressed on: "I'll get them on the Internet or at one of your competitors, so let's just do this here."

Salesman: "Geez. You're like the second person who has tried to do this today."

We stared at the shoe box. I liked what was inside. The loafers fit well, but they would feel even more comfortable with a discount.

Macy's blinked first. "Ten percent off," the salesman said. "That's the best I can do." I sensed an advantage and counteroffered: "Let's do 20 percent." I then sensed annoyance and settled for the 10 percent.

To understand Macy's situation, it's helpful to think in marginal terms. Macy's has a lot of costs that are more or less fixed no matter how many items it sells: its advertising budget, the rent it pays for its stores, and its employee salaries. But each item that Macy's sells also has a marginal cost. For the above-mentioned pair of shoes, maybe Macy's paid $110 to the wholesaler. Any price it sells the shoes for above $110 represents a profit on the margin.

It tries to pad this profit margin to offset some of the fixed costs, of course. But on each individual item, whenever the store is making more money than it paid, it's a win. On each item, refusing a $1 profit would be foolish. 

I've cited this post before, but it's another great example of marginal analysis. A budding economist only has a dollar in his wallet but sees that sending a fax costs $2. He convinces the store manager that not letting him send a fax for a dollar would be foolish, as even half the list price would net the store at least a 50-cent profit. The store manager agreed.

Going even further, perhaps it's in a store's interest to accept a loss on the margin in certain circumstances. Taking a one-time loss to appease a flighty customer will be worth it if the customer remains loyal, though it's difficult to determine when these discounts will have the desired effect.

Additionally, if an item has not sold very well, it is in the store's interest to get rid of it for whatever it can get, even if the price is well below what the store paid for it. Liquidation sales also fall under this same concept: it is cheaper to get rid of the items at steep discounts in a store that is set to close than it is to pack and ship all of the items elsewhere.

How Complaint Departments and eBay Feedback Cut Down on Refund Requests

An eBay member's feedback profile. Click to enlarge.

When we have a channel to express our anger at a business transaction, we're less likely to demand our money back or proactively injury the company's reputation. This is why most companies employ a team of customer service representatives to endure customer flack all day.

A paper in the Proceedings of the National Academy of Sciences illustrated this phenomenon by running the classic ultimatum game, but with a twist.

A brief background on the ultimatum game: Subject A is given $20 and told to split it between himself and a Subject B. Subject A can keep $16 for himself and give $4 to Subject B, or give $10 to each player, etc. Subject B sees the offer and can then choose to accept it (the money is split according to A's decision) or reject it (neither subject gets anything). In theory, a penny is better than nothing, so the B's should accept any offer above zero. In practice, many of the offers in which the B's get less than 50% are rejected. Many people see these rejections as a way for the B's to signal their disdain for the A's greediness and punish the A's accordingly.

However, in Xiao and Houser's version, each Subject B was allowed to write a message back to the Subject A, along with his decision on whether to accept the offer. Xiao and Houser found that rejection rates plummeted for low offers, when many of the B's were allowed to write unfavorable messages.

The rejection rates are much lower when the B's can send the A's a message along with their decision (from Xiao and Houser 2005).

This is the brilliance of letting customers sound off on their feelings, even if it's just typing them into a form that few people will ever read.

EBay would be decidedly less successful if there were no way to leave feedback. The signaling aspect of the feedback is obvious and well-documented: a seller who has not delivered on previous orders will earn a poor reputation, resulting in fewer future sales or a ban from eBay. More subtly, many angry customers, especially for the cheapest items, will be satisfied with registering their disdain and won't bother to file for a refund.

Kwedit Makes It Easy for Kids to Shop for Virtual Goods

The startup Kwedit is getting some media attention lately. From the New York Times:

A new payment option for anyone without a credit card or a debit card, no matter how young, has just become available. It’s initially offered by FooPets and Puzzle Pirates, online game companies that are business partners of Kwedit.com, a start-up based in Mountain View, Calif.

Minors as well as adults can buy items in the games with a “Kwedit Promise,” which can be paid off later in a number of ways — with a credit or debit card, for example, or with cash sent in a mailer that Kwedit supplies.

But here’s an entirely new payment option: A user can print out a barcode and head to a 7-Eleven store, which will accept cash, scan the code and notify Kwedit that payment has been made. In the next three months, a Kwedit logo will join those for credit cards and other payment methods on the doors of all 7-Elevens, a company spokesman says.

Of course, many of these promises will go unpaid. But since the items being purchased are virtual goods, there is no marginal cost to producing them, so any revenue generated is a win for the companies.

The system is brilliant because it makes it fun to give the company money. It also somewhat guilts the parents into compliance, as they can use the opportunity as a life lesson about responsibility.
In addition:

Kwedit’s system rewards users for repayment. Initially, the credit extended is modest, only $2 to $5. And a Kwedit score, modeled on a credit score for use by game publishers as a guide to how much credit should be extended, is set low.

That way, the system cannot (easily) be continuously exploited.

I've always been fascinated about how the Internet creates more opportunities for gains from trade. For example, I can buy a textbook from someone in Kansas who doesn't need it anymore; previously, there was no way for us to find each other. The potential to sell directly to children without the use of a credit card opens up even more opportunities. However,  some may argue that children should not be allowed to consent to making payments (some of the virtual items, though not most, cost hundreds of dollars), even though the promise to pay is unenforceable.

Snow Storm Approaching! Time to Hit Up ... the Bank?

So reports the Washington Post.

In my prior post, I discussed how there's been stampedes at the local supermarkets. But why this happens at the banks is more puzzling. If most people are going to be trapped in their homes this weekend, why bother getting money from the bank if they can't spend it anywhere?

One woman is quoted as saying:

"I am just taking care of bills before the snow hits."

Well, doesn't that just involve signing checks?

HT to Sharon.

Stocking Up Before the Storm

CC Image Courtesy of Stephen Cummings on Flickr

The Washington, D.C., area is expecting a major snow storm this weekend. All reports I've heard point to major overcrowding and supply shortages at local grocery stores ahead of the storm. The Whole Foods near Logan Circle was closed for 30 minutes because the crowds were causing fire safety concerns, reports the Washington Post.

In theory, the grocery stores don't need to be chaos before storms. When demand exceeds supply, the price level rises until enough people don't want the good at the higher price. The most price-sensitive people buy other things or wait for the price to fall. Stores could have a policy of hiking prices 20% ahead of major disaster periods, for instance. However, for political reasons and for fear of customer backlash, they may choose not to (we saw what happened with the 5 cent bag fee). If you don't really need to go shopping, you'll wait until next weekend. If your cupboards are bare, you'll be willing to pay the premium.

Instead, the scarce good that is space in the grocery store is allocated by time wasted waiting in line. Again, only those who really need groceries today will be willing to bear the lines.

Which is the better way to sort customers? Economists generally prefer the former method. If customers have to pay a premium, they might as well do so in money instead of time. At least the higher prices transfer money to the stores and the local government (via sales taxes), and the higher prices (in the long run) induce more firms to provide the scarce good. In contrast, if people have to wait in long lines, that doesn't do anyone any good and is a waste of resources.

However, both methods create a sort of economic efficiency, by getting the goods to the people who most need them, and who are willing to "pay" the most, whether it be in time or money. But note that, to some people, time is relatively more expensive than it is for others. So the final allocation won't quite be the same.

One Click, No Password: Is Ordering From Amazon Safe?

On Amazon, you can order an item with one click. But if you want to track shipping, enter a gift card number, cancel an order, or do anything else, you have to enter your password.

As one-click ordering cuts down on transactions costs, Amazon sells items to a few people who would have gotten distracted in the middle of placing an order or otherwise not clicked through all of the screens of the shopping cart. It also encourages impulse buying. But should consumers be worried that items can be ordered on their dime without a password?

In a word, no. According to Amazon:

If you click the Buy now with 1-Click button on any product page, your order will be automatically charged to the default payment method on your account and shipped to the default address--you skip the shopping cart.

You should not disclose your passwords or credit card numbers online, because thieves can scam you and end up with goods paid for on your tab. But what incentive does anyone have to cheat you with one click?

Say someone accesses your home or work computer when you're not around. All the one-click scammer could do is send books to your home address. He can't access your credit card data or ship items elsewhere, without a password. And with Amazon's e-mail confirmations and liberal return policy, any illegitimate one-click orders aren't going to end up costing the customer.

D.C. Bag Fee, or What We'll Do to Save 5 Cents

Beginning Jan. 1, grocery stores and several restaurants must charge customers 5 cents for a plastic bag. By informal measures, this has cut bag usage by over half, with some bit of consternation. The Washington Post reports many people awkwardly lugging groceries to their cars, sometimes dropping their items a few feet from the store.

Normally no penny-pincher, she now maps her day's travels to avoid having to shop in the District; she has abandoned her beloved neighborhood grocery store, Harris Teeter on Capitol Hill, in favor of stores near her Virginia office -- even though she pays an extra 2.5 percent food tax there. And twice she has unwisely carried an armload of bagless food out of D.C. restaurants, with calamitous results.

As alluded to in a prior post, many times in life, it makes sense to pay a small fee to avoid a major inconvenience. Perhaps drying our clothes on outside clotheslines would save electricity, but all of us bear the trivial expense of running the dryer because it saves us so much time. You would think that paying a few cents for the convenience of a bag would be a similar no-brainer, but it's causing a lot of stress for locals.

The article quotes Dan Ariely, a behavioral economist and author of "Predictably Irrational":

Because plastic bags have always been free, Ariely said, shoppers have come to see them as a kind of entitlement. Adding even a tiny fee is an affront to what they cherish as the natural order of things. "When it goes from zero to even a very small charge, it can feel very bad," he said. "It creates a very small financial burden but a very big emotional reaction."

Economic theory tells us that a tax should have the same effect regardless of whether it's the customer or the business sending it in (see here for a more extensive discussion (PDF)). However, this situation would have been much different if firms were taxed. I'd imagine they would suck up the 20-cent hit to their profit margins for each customer instead of getting a reputation for inconvenience. That way, the D.C. government would collect a lot more tax money but hardly make a decent in bag consumption. I wonder what the government would prefer: more tax revenue, or the use of fewer bags?

I've often been fascinated by how "free" is a drastically different price than some nominal amount, even if people can easily afford it. I'll likely have more on this topic in the future.

UPDATE 02/08: I've written more on this topic here.

Get a $25 Gift Card for Only $27!

I've been known to arbitrage eBay, especially when it comes to gift certificates and stamps. I'm willing to pay $24.50 for a $25 gift certificate, even if it requires waiting a few days for the item to come in the mail. Yes, I'm that cheap.

However, there are many gift certificates on eBay that consistently selling for MORE than face value! I've particularly noticed this with Amazon gift certificates (I would do a screen grab, but I'm pretty sure that this is a constant phenomenon, so whenever you click this, you'll see many auctions bid up to above face value, especially if you sort by "ending soonest").

This was discussed a few years ago on Marginal Revolution (see the comments), but I have yet to find a satisfactory answer. The best is:

"I am far enough from an Old Navy that the gas there would exceed the $2."

That's true in some circumstances because of transactions costs: You'll pay slightly more for the convenience of getting something mailed to you instead of going to the store. But this can't be the case with Amazon. Amazon gift cards are available in many forms: you can print them, get them mailed to you, buy them in a store, or just send someone a digital redemption code. It's hard to see why someone would choose to pay more money than face value and deal with the hassle and delay of eBay. Maybe there's some international consideration I'm not seeing, but I would think that getting something through eBay would be just as hard/easy as getting something through Amazon in any country.

The other best answer in the MR comments: "Stupidity."

I've e-mailed a few of the Amazon gift certificate sellers. Only response so far:

"I have no idea why they end up selling for more. I sold a $25 Amazon card for about $46 but then it came back as unauthorized so I don't know if it was really unauthorized or not since paypal still found in my favor as far as I acknowledge."

So, my theory is that it's either an awful lot of stupidity or an awful lot of scamming. Either could be a big black eye for eBay.

UPDATE 5/8: Another theory.