Shedding Light On The Hidden Fee Economy

from the why-do-people-put-up-with-it? dept

There’s been a lot of griping about the numerous hidden fees that seem to pop up in making purchases these days. The cell phone bill that comes out $20 higher than the advertised rate is a classic example of this. Then there are the hidden fees that are technically avoidable, such as high late fees at Blockbuster, or poor table odds at an otherwise inexpensive Vegas casino. Some economists are trying to study the hidden fee economy, to figure out why misleading pricing hasn’t been punished more by the market. One intriguing explanation is that products with avoidable hidden fees actually attract savvy shoppers, like the type that stays at the cheap hotel, but then gambles off-strip, where the odds are better. By adopting this pricing, hotels can attract smart travelers, while at the same time raking the clueless ones over the coals. Still others aren’t convinced. Despite the seeming elegance of this pricing system, other economists think that the annoyance factor is too alienating to customers, and that companies would be better off being honest and upfront. Of course, for phone companies, it doesn’t hurt that customers don’t have any good alternatives.

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Comments on “Shedding Light On The Hidden Fee Economy”

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anonymous coward says:

really, they are all “convenience” or, maybe better, “inconvenience” fees and most times aren’t all that hidden. am i willing to pay a little more to avoid an inconvenience? depends on the inconvenience to reward level. personal travel? of course i stay over on saturday. business travel? never. it’s not my money.

the fine line is when the inconvenience is seen as poor service, so the customer feels he/she is being charged just to get the basic service, not some kind of “upgrade”.

i’m no economist, but isn’t this really just a slightly more complicated supply & demand curve?

Grundy says:

Hidden Fees?

What hidden fees? If they’re so well hidden how do you know about them?

Anyway… In all seriousness I think unless it’s printed somewhere that’s readily visible to the consumer at the time of the transaction. (This would be in the form of a recipt or even in the contract nobody bothered to read. Hell even a sign at the register would be nice or the person you’re talking to on the phone about getting service.)You shouldn’t have to pay it. In fact you should be able to take them to court claiming bait & switch. They only get away with it because we allow them to do so.

Anonymous Coward says:

Wasn’t it our own government that created the first hidden fee? Sales tax could easily be mandated that it must be included in the advertised price, but for some reason, it was not. And now we have the exact opposite. NOONE includes sales tax in the advertised price. Doesn’t that makes sales tax the most popular hidden fee?

Once you have a government sanctioned hidden fee, that just opens the door to all the others. After all, now the consumer EXPECTS hidden fees (unless you live in New Hampshire), so they do not get upset when a corp entity tacks on a few more. They have become desensitized.

johnny says:

Can't figure it out??!

The last line says it all: “…it doesn’t hurt that customers don’t have any good alternatives.”

In many industries, there is no “free market,” at least in the sense we Americans think of it. Sure, it’s markets and social darwinism for us poor saps near the middle or bottom of the food chain, but it’s protections and access to friendly legislation for those with the $ to buy. What kind of genious enconomists can’t figure that one out?

Agonizing Fury says:

Hidden Fees Everywhere

Speaking of hidden or undisclosed fees, I called my local Papa Johns the other day to order a pizza. I had a coupon for $13.99 plus tax. The person on the other end said very quickly, that will be $16.10 thank you for calling papa johns then hung up. I had to call the manager back wondering when the sales tax increased. He said that they now charge a 1 dollar delivery fee. I asked him why they didn’t tell me about it, and he just said “every one in town does”. I just kept talking to him tieing up their phone line until he agreed to take it back off. Next time I order, I’ll just consider the delivery fee a mandatory grituity, and kindly let the delivery person know that if I am charged a delivery fee, that is all I’m paying (note that I usually tip delivery guys at least 5 dollars, more for large orders).

j37Hr0 says:

RE:Hidden Fees Everywhere

Don’t abuse the Pizza Delivery Guy

Go pick up your own pizza if you aren’t willing to pay the delivery fee. The Free Delivery option at dominos, pizza hut and the like became extinct with $3.00 a gallon gas. That’s why there is a delivery fee, your pizza boy probably spends half his tips on gas for his car.

dave (user link) says:

Re: RE:Hidden Fees Everywhere

I worked for Papa Johns in the late 90s before they initiated a delivery fee. In my instance there was no company car, and no reimbursement for mileage. There was a strict per order payment we recieved. 70 cents per order.

As far as I can tell from deliberately questioning dominos, papa johns and others, their drivers STILL recieve the same standard fee they did years ago. The company pockets the whole delivery charge.

If they’re paying for gas fine, but I highly doubt papa johns or others would worry with taking delivery boy receipts for gas purchases or even computing the accurate mileage for his trips. They’re still using green screens in my town…

Topher3105 (profile) says:


Because the collective IQ of any population pool is essentially 0.

People are stupid, period. There is no sugar coating it, or diplomatic way of putting it. In any given crowd, most of them are dumb f*cking asses in one way or another.

And I am not talking about the difference between people educated in schools over people that drop out or don’t do well. I know doctors and lawyers and of course, politicians, with all the education money can buy act like the most significantly retarded people on the planet.

The simple fact is, corporations understand this culture of ignorance. They know that if they put an ad in the newspaper saying that car costs $13,000, that after they whirl figures of lease rates, interest rates, all the taxes and docking fees and transportation fees, and everything else over peoples heads, that many people still thinking they paid $13,000 for a car and got a great deal in fact will pay $16,000 after everything is said and done. The saddest part is, most people will never realize they paid $16,000, largely because the never bothered to multiple their monthly lease/purchase rate by the total number of months they will lease or buy the car. They can’t even do simple arithmatic.

It is why a cell phone service advertises for $19.99 a month, but people are f*cking shocked when their bill hits over $40 without including long distance charges.

We live in a culture where people are lazy, and lazy breeds stupidity. People don’t want to read the fine print, and corporations know if they make the font small enough, and put in enough legal mumbo jumbo, people WON’T read the fine print. If you don’t read the fine print, don’t be shocked when you always pay more then you think you owe.

There is no such thing as a smart customer. Corporations all know that to some extent every customer is a retard waiting to be ripped off. If you feel duped or angry about it, smarten up and get a clue! In most cases, you can control your own destiny, in others, you have to accept this is the fact.

I, for one says:

Re: Why

Topher3105, I suggest you read this. It’s a bit of pop psychology that imho is more valuable, more practical, than most academic texts on the subject.

Firstly, the collective IQ of any population is 100, by definition.

You are correct that the large majority of people are taken in by these methods. It’s not because they are stupid, but because they are trusting.

Secondly you should study the concept of cognitive equivilence. In simple words, most people are not as stupid as you think. Many people are very smart in ways which remain hidden most of the time.

Lastly, my own somewhat Buddhist philosophy on the matter. In the final levels of intelligence , education and experience you get to realise just how frighteningly stupid you really are. You spend all that time in between thinking you are special only to realise you are not. Very few people are ever smart enough to reach this level of enlightened stupidity. 🙂

Did you know that most people think they smarter than average?

Think about that for a moment.

Greg says:

Hiiden Fees

Here is the fee that ticked me off. Bank of America charged me a $5 fee for not making an automatic deposit for 31 days. I discovered this fee in my January statement because my December automatic monthly deposit came early for Christmas and my January deposit came at the end of the month as usual. They refunded the fee when I found out why it was there and complained, but I wonder how many $5 fees were collected because no one looked at their monthly statement. To me, this is a truly hidden fee and I think it is unethical to try to trap the unwary in this way.

MEoip says:

hidden fees

Didn’t some one already look at this with Amazon’s free shipping; they decided that people were more apt to pay more for a product if it had free shipping. Get rid of the hidden fee and raise the price to make customers happy.

I’ve spent the past 2 days trying to find the best price on High Speed Internet besides, the hidden fees are expensive (the phone line I got had hidden fees that doubled the price). I would be more apt to buy from a company who gave bottom line fees. It wasted to much time trying to budget out hidden fees, I had to yell at the customer service “tell me the bottom line!” One lady told me for phone + DSL I would pay $55 that was for a $10 phone line $15 DSL + 30 in fees. She said that’s a good deal and I said you mean there are $30 in fees followed by a good bye.

Chris H says:

Bank of America is one of the worst. I signed up for a checking account and requested a MAC card. They sent me the card and blank checks. Then proceeded to charge me $20 for the checks I didn’t want. I ended up getting it reversed. Also, they charge you to use other bank’s ATM machines. I got whacked with that as well. And NO it was NOT the other bank charging me. So, I’m not surprised they whack you with that lame $5 fee for not having a direct depopsit made within 31 days.

DV Henkel-Wallace says:

lie and say they're fees

The part that ticks me off about the phone “fees” is how many of them are just parts of the carrier’s bill but are buried among the taxes and regulatory levies (some of which go to the carriers too….but I digress). So you just assume that they are just more taxes (like excise tax on tires) and don’t realize that the carrier is merely surreptitiously jacking up the bill. Astonishing that they don’t run afoul of the truth in adverising laws!

At least the casinos tell you how much their slots are ripping you off (at least in Navada)!

DV Henkel-Wallace says:

happens in business too

It’s not just at home where you encounter this.

We use a toxic waste-hauling business that levies a fuel fee, but they make it explicit. That is, they tell you up front how it varies with the price of diesel, and they send you a letter when they adjust it with the calculation built in. The rest of their charges don’t vary much from year to year. That I can deal with.

But we had a contract lab with the opposite problem. Yeah, their bill spelled everything out, but buried in the fine print were clauses letting them jack up the price at will. When I called and said “I can’t understand your quote — what’s the actual bottom line for our project” they acted astonished that I wasn’t prepared to just sign it as written. And in this case I’m talking about a possible $50,000 swing on a $30,000 project! The president of the company was blown away when we chose somebody else. According to him “everybody bills this way”…too bad for him I had other quotes.

I consider this blatant dishonesty whether it’s a phone bill, car repair bill, or contractor. Let me know what to expect and if I sign up I won’t complain when the bill comes.

I, for one says:

Re: happens in business too

I’m quite familiar with this sort of practice too. You order a part at the advertised price. When you look at the recipts you find an extra 10% to 50% added on for “services”, “expenses” and similar bollocks.

Overcharging is a confidence trick.

Never heard it stated that way? Well ask yourself “What is a confidence trick?”

It’s a transaction in which a person, having already invested value in a course of action feels it’s easier to simply carry on with the process than to pull out.

At the “hook point” you have already either given some money, signed a contract or made some agreement that means you are down on the deal. The trickster then confronts you with some hidden charge. At this point most people feel it’s easier to just finish the deal than pull out losing their initial investment.

Note: This investment does not have to be financial, in fact it works better when it it isn’t, it’s just your time.

Look at the balance of investments in a modern contract. The customer puts everything up front. The seller uses an automated website or cheap labor callcenter and makes the buyer jump through unreasonable hoops, fill out long forms, supplying personal information and credit card numbers up front. The trickster minimises his own investment in the pre-contract arrangements, so that on balance if a deal vanishes he has lost nothing, or very little.

Technically the falsely advertised price is not a lie, it’s all legal because of fine print get-outs. But the customer *trusts* this price.

“they acted astonished that I wasn’t prepared to just sign it as written”

This is a typical tactic. Acting confused or astonished that you don’t think everything is perfectly normal is to make you feel foolish. It’s amazing how often a first time customer in a new business will be suckered by this. Nobody wants to feel like they are stupid and don’t know how things are “normally”.

“According to him “everybody bills this way”.”

More of the same. It’s like a mugger saying “Hey don’t take it personally, everyone who walks down this street gets mugged man, and all my mugger mates agree that’s just how things are around here”

What can you do about it all? Not very much imho. Use escrow services and houses which offer arbitration, eBay is a *good* example of this if used correctly. Write postdated cheques while you satisfy yourself the deal is good, or use a good credit card company that will perform a chargeback on your behalf if there is ever a dispute. Once you get the trickster into a dispute resolution they are burning time on you and will usualy waive their claims and settle fast and favourably as long as you hold the property and have the advantage.

Howard (user link) says:

Re: Re: happens in business too

Ebay is a classic case of hidden fees. Because of the way fees that ebay charges to sellers are structured, there is a large incentive to minimize ‘price’ and maximize “shipping and handling”, leading to things like a metronome ‘selling’ for 1 cent, with $20 “shipping and handling” for something that typically costs about $3 to ship.

It’s also a really good way to prevent anybody from returning anything, since all they can get back is the “purchase price”.

Ebay has publicly announced that they are “cracking down” on this practice, but ebay is much better at talking the talk than it is walking the walk. They have little incentive to enforce this rule, as the majority of sellers violate it (at least from my casual survey of my competitors there).

loikll says:


Man, I rented a U-Haul pick’m-up truck — boldly advertised on billboards and on their vehicles as $19 a day — and found it costs no less than $50-60. I mean, I get the idea of mileage being extra, but the advertising becomes dishonest when even a few miles within the city costs MORE than the base rate. That’s like advertising MILK: 5 cents a gallon (plus cost of plastic carton, $3.30)

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