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A High Price is a Good Price – Under the Right Conditions

A High Price is a Good Price - Under the Right Conditions

Overpaying for something that could be found in a different store (or online), under the right circumstances, makes both parties happier.

Author

After looking around a bit, I asked the cashier at a nearby convenience store if he had any nine-volt batteries because I didn’t see any on the shelf. To my good fortune, he did. I asked for two of them and pulled a $5 bill out of my wallet as he rang them up.

“$12,” he said.

I gasped a little, put the $5 away, and reached for my credit card. It had been a while since I’d bought batteries, but $12 for two batteries seemed a little steep. It was anywhere from two to four times as much as I would have paid for batteries on Amazon.com or at Walmart.

But I paid the $12. And I was happy to do so.

Wasn’t I getting ripped off? Should I have called the authorities about the absurd price the merchant was asking?

I wasn’t, I shouldn’t have, and I didn’t. Why?

Maybe “happy” to pay $12 was a little strong, but I was definitely willing. I was already well into a busy morning and I had some Very Serious Family Business to attend to. I would need to be at the airport not long afterward, and our carbon monoxide detector was chirping because the battery was low. I would have liked to pay less, but in the circumstances, “overpaying” for batteries causes no great hardship.

When people get outraged at prices that are much higher than they would pay at a big box store or online, they’re making a mistake about what they’re buying. The convenience store owner wasn’t just selling me batteries. He was selling me batteries in a particular place at a particular time–he was selling convenience, in other words.

He couldn’t force me to buy them, either. If I didn’t want the batteries at $12, I could have very easily ordered from Amazon and waited a few days or driven all the way to another store. I chose not to spend the time driving all the way to Walmart to save a few dollars or order from Amazon and leave our smoke detector and carbon monoxide detector batteryless while out of town.

It may not seem like it, but the convenience store’s owner was looking out for me by stocking the batteries I wanted right when and where I wanted them. He (probably) didn’t do this because he cared about me or my wants as such. I’m sure he has problems of his own, his own Very Serious Family Business, and his own smoke and carbon monoxide detectors to keep up to date. He didn’t need to know why someone would pay $12 for two nine-volt batteries. He just needed to be pretty sure someone would.

Business, it turns out, is risky. There’s a lot that goes into stocking a battery. The owner’s capital (on which he pays interest) is tied up in a battery that’s taking up space (for which he pays rent) and covered by insurance (for which he pays a premium) and under the management of a cashier (to whom he pays wages).

He was constrained by the fact that I could just walk across the street to another convenience store. This meant the first guy couldn’t charge “whatever he wanted.” I was armed with the consumer’s most powerful phrase: “no, thank you.” I’m sure he wanted to charge a jillion dollars per battery. But he couldn’t, because someone else stood ready to undercut him and appeal to my interest out of concern for his own.

Even then, shouldn’t he have been motivated by my need rather than his greed? I’m actually not sure this means anything useful. Economists are wary of the word “need;” whether you need something or not is context-dependent, and I’m always amazed at how much my kids’ “needs” change when they’re paying with their money rather than mine. And in any event, I’m an able-bodied man, hardly defenseless and hardly positioned to really suffer by going battteryless for a couple of days. The $6 price tag for each battery sent a not-so-subtle social message. The high price was everyone’s way of coming together and saying “shame on you. Be more responsible about checking the batteries in your smoke and carbon monoxide detectors, so you can buy them somewhere else.”

In Leave Me Alone and I’ll Make You Rich, Deirdre McCloskey and I joke that my favorite tool is my credit card. I’m all too happy to throw money at problems because it frees up my time and energy to do things like write articles about how you should throw money at your problems, especially at the holidays or about how the people charging so much for batteries (or undershirts in a hotel lobby) are actually serving me even though it might not look like it.

As we look back on the holiday season and get ready for the year ahead, recognize that the cashiers and capitalists you didn’t know you needed were actually your holiday heroes. And, of course, you can learn with me a powerful lesson about the true meaning of Christmas: if you don’t want to pay $6 each for nine-volt batteries, make sure you add some to your cart the next time you go to the store or shop online.

Source: AIER

Author

  • Art Carden is a Senior Fellow at the American Institute for Economic Research. He is also an Associate Professor of Economics at Samford University in Birmingham, Alabama and a Research Fellow at the Independent Institute.

The views expressed on austriancenter.com are not necessarily those of the Austrian Economics Center.

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