Alex Lloyd George
Drip pricing, service fees, resort fees, processing fees, facility fees, even “convenience” fees: low price transparency is a problem with a hundred names that takes a thousand small cuts out of the average consumer’s wallet across sectors ranging from hospitality and banking to entertainment and travel. If these hidden costs can be boiled down to a single sentiment, it is the following, “I didn’t sign up to pay for this.”
While each particular instance of a hidden fee comes across as more irritant than menace, when tallied up the amount is more mountain than mole hill. About eighty-five percent of American consumers have experienced “an unexpected or hidden fee,” and in the hospitality and event industries alone these fees amounted to nearly $4 billion in 2015.[1]
From a policymaker’s perspective, the tension lies between a reluctance to interfere in the transactions of consumers and business entities, and the desire to maintain markets that function well and fairly. In addition to appearing unfair, there is evidence that obscuring the true price of a product harms the market. Economic research into price complexity indicates that greater complexity results in consumers paying greater prices.[2] While such interactions represent a transfer from consumers to sellers, those sellers face difficulties of their own when simplifying pricing. StubHub, one of the biggest players in the event tickets industry, unilaterally shifted to “all-in” or up-front pricing in 2014. However, this laudable move backfired. StubHub soon lost market share to competitors who looked facially cheaper to consumers looking at the sticker price, not the final price.[3] In testimony before Congress, an executive of Ticketmaster called for all-in pricing to be mandated across the sector.[4]
In this sense, price transparency is the kind of problem that consumers and sellers have been unable to solve solely within the market. It demands a policy response. Following investigations by attorneys general in all fifty states, the D.C. Attorney General filed suit against Marriott for the use of hidden fees to obscure the true price of their rooms, alleging that these practices were deceptive and thus violated a D.C. consumer protection statute.[5] The scale and stubbornness of the problem have begun attract attention and action in recent years. New York Governor Kathy Hochul signed legislation in June 2022 that “requires full ticket prices to be disclosed prior to a customer purchasing such ticket [and] requires such price to remain the same during the purchase process.”[6] At the national level, President Joe Biden recently highlighted efforts across the federal government to address fees in different industries.[7] These efforts include a proposed regulation by the Federal Communication Commission to require that internet service providers adopt standardized labels for broadband options that clarify whether the offered price is an introductory rate and, if so, the provider must also state the price the consumer will be required to pay following the introductory period.”[8] In early 2022 the Consumer Financial Protection Bureau issued a request for public comment on “junk” fees in financial markets, a precursor to a potential regulation.[9]
The fruits of these policy efforts are yet to be reaped, but their emergence reflects an effort to deliver broad solutions to a problem that has bedeviled consumers and sellers alike. If those efforts are successful, you may never again have to feel the deep annoyance and sting of unfairness upon seeing a concert ticket run you $50 more than was promised.
[1] Sharon Epperson & Jessica Dickler, Americans Fork Over Billions in Hidden Fees, CNBC (July 28, 2019), https://www.cnbc.com/2019/07/26/americans-fork-over-billions-in-hidden-fees.html [https://perma.cc/5VKM-UFTA] [https://web.archive.org/web/20221016201312/https:/www.cnbc.com/2019/07/26/americans-fork-over-billions-in-hidden-fees.html]; National Economic Council, The Competition Initiative and Hidden Fees, White House (Dec. 2016), https://obamawhitehouse.archives.gov/sites/whitehouse.gov/files/documents/hiddenfeesreport_12282016.pdf [https://perma.cc/DX73-AWD3] [https://web.archive.org/web/20221016201655/https://obamawhitehouse.archives.gov/sites/whitehouse.gov/files/documents/hiddenfeesreport_12282016.pdf].
[2] Kenan Kalaycı, Price complexity and buyer confusion in markets, 111 J. Econ. Behav. & Org. 154 (2015).
[3] Hannah Karp, StubHub Sings the Blues After Shifting Fees, Wall St. J. (Mar. 26, 2014), https://www.wsj.com/articles/SB10001424052702303949704579459902559659002 [https://perma.cc/TL82-Y2ZA] [https://web.archive.org/web/20221016202230/https://www.wsj.com/articles/SB10001424052702303949704579459902559659002].
[4] In the Dark: Lack of Transparency in the Live Event Ticketing Industry: Hearing Before the Subcomm. of the Comm. on Energy & Commerce, 116th Cong. (2020) (testimony, Amy Howe, President of Ticketmaster).
[5] See Press Release, D.C. Attorney General Karl A. Racine, Statement on Suit Against Marriott for Charging Deceptive Resort Fees and Misleading Tens of Thousands of District Consumers (July 9, 2019), https://oag.dc.gov/release/ag-racine-sues-marriott-charging-deceptive-resort [https://perma.cc/U84F-CCE8] [https://web.archive.org/web/20221016202603/https://oag.dc.gov/release/ag-racine-sues-marriott-charging-deceptive-resort].
[6] 2022 N.Y. Sess. Laws 358 (McKinney) (S.9461).
[7] President Joe Biden, Remarks at the Third Meeting of the White House Competition Council (Sept. 26, 2022), https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/09/26/remarks-by-president-biden-at-the-third-meeting-of-the-white-house-competition-council/ [https://perma.cc/8FEL-GYK2] [https://web.archive.org/web/20221016202810/https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/09/26/remarks-by-president-biden-at-the-third-meeting-of-the-white-house-competition-council/].
[8] Empowering Broadband Consumers Through Transparency, 87 Fed. Reg. 6827 (Feb. 7, 2022).
[9] Request for Information Regarding Fees Imposed by Providers of Consumer Financial Products or Services, 87 Fed. Reg. 5801 (Feb. 2, 2022).