Charging extra for specific preferences, such as selecting a seat on a flight, helps lower base prices, increasing access to simple options for low-income customers, while allowing businesses to personalize their services according to the preferences of each client. For example, airlines separate in-flight food and checked baggage, generating more profit opportunities and lower base fares. Yes, “price discrimination” – charging different amounts to different customers for the same product – can sometimes be harmful to customers on the Internet. But prohibiting such unbundling when consumers place very different values on certain services can exclude poorer consumers and force others to pay for services they do not want or need.
Likewise, overdraft fees charged by banks help discourage costly behavior. Banks incur costs and face increased risks when their customers overdraw their accounts. Overdraft fees help deter this behavior in a targeted manner, by charging fees to customers whose accounts are overdrawn. Capping or limiting overdraft fees does not eliminate these costs and risks; it just means someone else has to be billed for them in a different way. Banning overdraft fees therefore means higher prices for another subset of a bank’s customers.
This is from Ryan Bourne, “Abolishing ‘Junk’ Fees Should Be Junk Policy”, in Ryan A. Bourne, The War on Prices: How Popular Misconceptions About Inflation, Value, and Prices Create Bad Policy, which was released this week. There is actually other content between these two paragraphs.
As I said in the book blurb, this is one of my favorite chapters. More precisely, I wrote“Of particular interest are the chapters on rent control, oil and natural gas price controls, and so-called junk fees, which are actually fees intended to solve problems that would exist without them.”
Bourne cites President Biden’s attack on “junk fees.” I get the impression, given Joe Biden’s little or near-zero understanding of economics, that Biden thinks eliminating unwanted fees won’t lead to higher prices.
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