Bouting, heat waves and hidden costs: you know they arrive, but in a way, they are impossible for the holidays to dodge. This summer, after online comparison purchases, we paid a large sum for the privilege of collecting a rental car in Germany, but to drop it off in Italy. Surprise surprise, when we reached the opinion office at Garmisch-Partenkirchen, they would not give the keys until we pay additional costs. The problem was, they explained that even if we had paid to drop the car in Italy, we had not paid the costs to drive in Italy. (Presumably, the online price assumed that we would conclude the car in brown paper and ask Deutsche Post and Post Italiane to deliver it to Bologna for us.)
The charge was not optional, so why had it not been mentioned when we reserved? My wife’s blood has started to boil. I started to laugh and take notes for this column.
But wait; Faithful readers could feel a feeling of already seen. Haven’t I described this exact scenario before? Yes, I, at the time innocent of 2019. The situation was different, however. It was Europcar. This time, it was notice. Direct business, same thing.
Why does competition not remove such nonsense? One possibility is that the competition forces are simply not strong enough: Garmisch-Partenkirchen is popular with tourists, but it is not a large place, and there are not many international car rental companies competing there for your business. A second possibility is that us, the customers, are simply not wise enough: the trap yawns in front of us, but we do not look our feet and we fall every time.
This second possibility is intriguing. Not everyone hates being caught up in additional costs, so why does a car rental office not earn business by proclaiming that he does not impose hidden accusations?
The answer, proposed two decades ago by economists Xavier Gabaix and David Laibson, is that such a proclamation could turn around. What about customers who look at the high price of the company who invoices everything from the start and think: “If I can dodge hidden charges, I could be better with the competitor.”
Consider that the traveler faces a choice between the hotel from the start where the room is expensive, but the phone, wifi, minibar and parking are all at a reasonable price, and the hotel flyrap, where the room is cheap to attract in the dragees that make expensive calls and drain the minibar. A moderately wise customer could prefer the hotel all inclusive in advance. A truly informed will organize a virtual SIM card, will go to the local 7-Eleven to collect a cold beer and a few snacks, then stay in the Flytrap hotel, their cheap room subsidized by the dragees.
In other words, “no hidden fees” also involves “if you can avoid hidden costs, you must choose our competitors”. The hidden charges can flourish, write Gabaix and Laibson, “even on the highly competitive markets, even on the markets with abusive advertising”.
All of this is boring, and that raises the prospect that customers buy products that they would not have chosen if they had told the truth. My wife and I hesitated to take the train in Italy and hire a different car there; If notice had listed all their costs in advance, it may be the choice we would have made.
And there is also a more systemic problem. Even a customer who spots each trap and jumps through each hoop can be too much payable. Indeed, all the obscure and the floor errors weaken the incentive to any business to offer a good price. If only a handful of customers are conscientious enough to understand the best offer, they can see that the best offer was not really worth understanding anyway.
So what can we do? A simple approach is to insist on transparent prices and all understood as long as you are possible. The British law on competition and consumption of digital markets of the United Kingdom requires it, and the new directives of the Competition Authority and Markets seem to explicitly prohibit in the practice of the car rental company aimed at adding an additional compulsory office. (The CMA arises that even if costs such as a tourist tax are inevitably paid later and in local currency, it can and must be mentioned at the time of booking.)
These transparency rules are all very good insofar as they are going, but in an ideal world, products and services would be sold with maximum comparability. I should be able to request a price comparison website or even a digital agent to meet my requirements, search for the web and return with the best offers. It was the concept behind the “Midata” initiative floated by the British coalition government in 2011, which put pressure for standardized and machine -readable terms in banks, mobile telephone contracts and energy bills. The idea was that you could download information on your phone calls or electricity consumption, download this data in a sort of comparison engine and tell you which supplier was the best for you. Now, we are told that AI agents will start to navigate the dark models of the web for us, defuse the traps and undo predators. I wonder about it.
Midata was only a partial success, making much more progress in the bank than energy, but the more complex a product, the more difficult it is to make reasonable comparisons. Each person has their own model for using the phone or energy consumption, but at least these models vary in an easy to compare way. But take more idiosyncratic products, or ad hoc purchases, and the complexities make up. Where and when did you want to drive this car? How good do you want your theater tickets to be good and want to include drinks at the interval? We want variety and choice, even personalization, but we also want honest and comparable prices. And as a man said one day, you can’t always get what you want.
Perhaps better technology and better rules will prevent price ambushes in the future, but it is more likely that customers find themselves acting a version of serenity prayer, wishing that the warning identifies the price traps that can be avoided, the grace to accept the price traps that cannot, and the wisdom of knowing the difference. Otherwise, “staying away from the minibar” is never bad advice.
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