At dinner last night there was discussion of the quality of (or lack there of) airline service. One individual complained about the consumer injustice of some airlines now charging for checking an additional piece of luggage. I made the observation that most of us at dinner were business travelers or light packers so, on average, we benefit from the policy through lower ticket prices. “But that’s ridiculous, ticket prices haven’t gone down,” everyone at the table scoffed. I tried, rather unsuccessfully, to explain:
A piece of luggage is additional weight and so adds to the cost of the flight. Absent pricing, the cost is distributed across all ticketed flyers. Unless you carry more than the average amount of luggage, you benefit from the policy by no longer splitting the bill with heavy packers. In fact, flyers will respond to the price signal, begin to pack lighter, on average, and the entire flight will become more efficient, so the cost should go down marginally for everyone, but more for lighter packers.
The same is true for airline food. Unless you really like airline meals, the policy of charging for snacks instead of serving free meals is a net benefit to you.
Of course, given the variability in airline prices and myriad other costs, it would be IMPOSSIBLE for a customer to observe this effect. But unless you think airline prices are set collusively, it HAS to be true.
The logic is glaringly obvious. And yet it amazes me how difficult it is for otherwise exceptional bright people to grasp the concept. How has a species which appears to have selected for a general aversion to or incapacity for economic thinking achieved such prosperity?
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4 comments:
A simple answer to your question: they have survived by packing heavy bags on a regular basis.
Let me explain. Your friends have never thought of the fact that they heavy bag packing is subsidized by light travelers. Likewise, they probably don't realize that if the Iraq War Bill were distributed evenly amongst all citizens of the US, they are not paying their full share. They are benefiting from a socialist system of redistribution of wealth rampant in our federal government (and occasionally in private businesses) at the expense of an unnamed, faceless group of fellow citizens. Or, in some cases, they are part of the faceless group of true victims but have been persuaded through risk/fear arguments, or are just ignorant, to their victim hood. But you knew this already.
Are your friends healthier than the average person in their workplace, there by possibly subsidizing the unhealthy ones? Did they go to public universities and think that their tuition fully funded their expenses to the school (or subsidized other's expenses)? Do they also think that, "Buy one Get one Free" means that they actually get one for free?!?! That I really get a FREE continental breakfast when staying at a hotel because the cost of breakfast isn't paid by my room fees, but the hotel pays for it with their profits.
Good examples. I'm not sure if I get what you are saying re Iraq?
I didn't explain very well-- There are about 300 million people in the US. If we were to divide the bill of the Iraq War by 300 million, I doubt that the taxes I pay are funding "my share".
But what benefit do I receive from the war? Maybe my benefit is proportional to what I pay. I'm not sure, because this is all just speculation.
Send your friends to buy chocolate bars from this little girl. She will give them "a bargain."
from Parentonomics Blog, http://gametheorist.blogspot.com/
re--she is selling candy bars...
But she figured that it couldn't be below $1 per bar or she would be losing money. So she decided to jack to price of single bars up to $1.50. "That way, if you buy a second bar you think you are getting it for 50 cents. A bargain," she explained.
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