19
Aug
2014
In Which I Explain My Bargaining Power at Hair Salons
My latest Mises Canada article. An excerpt:
[I]f the ignorance of alternatives on the part of female shoppers is the culprit here, including being “lulled into not doing anything about it,” then why is the gap in Speed Stick versus Lady Speed Stick 45 cents per ounce–as the article claims–rather than, say $10 per ounce? Why don’t dry cleaners charge women $1,000 to clean a blouse, if they have such power to engage in discriminatory pricing?
Denying the existence of price discrimination seems ridiculous.
Why? Do products have different prices depending on who is buying? I don’t get a discount for buying Lady Speed Stick Just because I am a man.
I don’t know about others, but my wife’s deodorant lasts about twice as long as mine for similarly sized or even smaller sticks.
Are you saying she only uses deodorant every other day?
You are attacking the wrong target. The article does not say the main reason is that manfacturers are sexist by charging more, but society is sexist by expecting more of women, who then demand more from the suppliers. From the article section but realy, here’s why women pay more: “Of course, there’s an obvious answer here: society expects women to look a certain ways apperance”. “Women play out their gender by wearing lipstick and all sorts of frilly shirts that don’t dry clean easily. And to a certain degree, says Joy, that makes them happy”
The author acknowledges some of your points – dry cleaning costs more because the shirts are more complicated. Haircuts cost more becaus more complicated treatments are demanded.
Sexist society also costs men, who are “required” to fit into their gender stereotype too. Hence they spend too much on ferraris and Nikes. Sexism hurts men and women. It hurts everybody. It hurts the potential women who are put off becoiming engineers. It also hurts the men who are put off becoming nurses. It hurts everyone who would have gained from the services of those nurses and engineers.
Why put “required” in quotation marks?
And when I said “potential women”, I of course meant actual women, who could potentially become engineers.
What do you mean it costs men? I don’t usually pool my money with random other men I happen to meet, do you?
You may be the exception. Most people are susceptible to peer pressure. If that pressure is based on sexism, then it costs them.
Good point. Couldn’t think of a better way at the time to expres that failure to meet the expectations of society will be subject to negative pressure, without an explicit compulsion to comply. Perhaps a lazy way of expressing it.
The main problem with this post (apart from repeating the same points made in the original article and making it look like fresh criticism, the point about womens hair cuts taking longer for example) is that when your theory of how things should work meets contradictory evidence from the real world, you try to twist the evidence to suit your theory. You write that in theory competition should remove sexism from the economy therefore any contradictory evidence can’t exist.
You even admit this point halfway through and say you are giving trying to explain this market failure, you will just try to come with reasons to justify it. If you assume the market is always best before considering the evidence, its no surprise if you reach a conclusion that the market is best.
Robert, why don’t you start a business that takes advantage of all these market failures? You can eliminate sexism and make a ton of money at the same time.
Its funny that competition is so frequently assumed to solve all the problems of the market. The simple reason why I don’t start is lack of capital and lack of knowledge/skills. This is the reason why the vast majority of people don’t start a business.
There is also the point that a huge gap in the market could exist and people don’t know its there. For example, what do you know about the laundry business? There could be huge profit making potential, yet few have studied the industry to know.
There is the much larger problem of new businesses that prevents them from undercutting established rivals. Think about it. When you set up a new business you have a lot of costs, rent, machinery, training in staff and no customer base. Now do you see why a new business business would be reluctanct to squeeze their profit margin on top of these problems?
Then there is the possibility that customers won’t even know your new business exists (after all how often do you check for new laundry shops) or have brand loyalty or just general mistrust of the unknown (never underestimate the power of inertia).
So yeah, there’s a few reasons why competition won’t solve everything.
OK, so when you were claiming there was a market failure in regards to industries you know nothing about, and are not even capable of doing yourself, you were just speaking from absolute ignorance?
No Dan, I just read the article.
And after reading the article, you still don’t know anything about starting or running these businesses. So, how exactly do you know that there is a profit opportunity for businesses you don’t know how to start or run to charge less to their customers?
Ok Dan you’ve completely missed my point and seem to have even forgotten what you said earlier so let me explain.
You said that if there really was unfair pricing another business could enter and make a ton. The implication being that if there was a gap it would quickly disappear.
I then pointed out the many problems with this theory and why I would not enter the market. You seem to have interpreted my unwillingness to set up a hairdressers as proof of my ignorance, which is a strange conclusion.
Let me repeat. There are many justified reasons for untapped profit making opportunites to remain untaken for long time or even permanently (lack of capital and information being the main two but there are others).
Robert, you said, “The simple reason why I don’t start is lack of capital and lack of knowledge/skills.”
Anything you say after that is simply your uneducated guesses why their is a difference in pricing.
So, don’t tell me what reasons there MIGHT be for the price differences. Because the price difference might have nothing to do with sexism which would also conform with standard economic theory. If you want to claim that sexism is to blame, then the burden of proof is on you.
So, can you explain exactly how you know that there is a profit opportunity for businesses you don’t know how to start or run to charge their customers less?
“So, can you explain exactly how you know that there is a profit opportunity for businesses”
I never said that. You did. Reread your comments, you’re the one who (sarcastically) claimed a ton of money could be made.
“I never said that. You did. Reread your comments, you’re the one who (sarcastically) claimed a ton of money could be made.”
So, are you saying that you believe sexism is to blame for the price difference, but there is no profit opportunity to join that industry and lower those prices?
I’m saying that even if there is a profit opportunity, this does not mean it will automatically be taken.
Large companies have marketing departments with capital behind them, and a strong profit motive, and they do plenty of market research and time and again they discover there is more money to be made by aiming their products separately at men and women, thus take advantage of different buying patterns based on gender.
Since their driver is profit, rather than preconceived politically correct notions of gender equality, they take advantage of what people actually do in supermarkets, hairdressers, etc.
As Bob points out, many small businesses discovers the same thing, without the big marketing department.
In my area thete are lots of barber shops that seem to always be run by men, and cater pretty much only to men, and only short haircuts.
The strange thing Tel, is that your argument could be used to suggest that companies exploit and even increase gender divisions if it is more profitable. This probably is the case, but not something the other commenters here would like to hear.
Robert,
The argument that market forces tends to eliminate sexism is not refuted by the existence of poor people or people who lack skills to compete with existing competition.
The existing competition in a market is what is being argued as tending to eliminate sexism. After all, the market process always leads to project planners and project followers. Hierarchy of knowledge.
Competion does solve sexism. The fact that there are people with guns who make competition illegal, does not refute this.
So I gave a detailed comment explaining how competition may not be the knight to rescue people and you simply ignore that and repeat praise for the market. Could you have even tried to engage with my points? Otherwise there’s no point in responding to you.
Robert (not Murphy), how is this a market failure? I thought price discrimination is a market success!
Why would it be a success? Some people might see charging people more because you can get away with it as a success, but that depends on your view of the market.
Robert – here is my attempt to say why price discrimination may be a good thing. If you view the market as ideal. In competition by definition people will not pay more than something is worth to them. They always get a good deal. If we have one price, it will be too high for some people and they will not be able to benefit from the offer, whereas some people will pay much less than they would be willing. If the people with the high willingness to pay do pay more, this would allow some units to be sold at a lower price to those with the lower willingness to pay. More customers are able to take advantage of that good deal.
The key point is that in order for welfare to increase, output must be higher with price discrimination than without. Raising the price to one group must be passed on to effectively subsidise another group. If the price discrimination only shuffles around the money that pre-existing customer groups paid and does not increase the total output, then welfare will be decreased.
So student and senior citizen discounts are often considered good, as they allow these groups to take advantage of the offer when with one-price they would not. These are often most effective when the marginal cost is very low – all the costs are fixed or sunk, as in providing a theatre, aeroplane or telephone service.
I think this sums it up, but there are many here better able to elucidate than I.
It also does depend on everyone always making a good choice about purchases.
“If you view the market as ideal.”
That is the key point. If you view the market in the same way a standard economics textbook would, then price discrimination and pretty anything markets do will lead to the best of all possible worlds.
If you don’t view the markets as ideal, then discriminating on the basis of gender is not so agreeable. The most important point about this example of price discrimination is that it shifts the burden onto people with lower not higher incomes (women an average earn much less than men).
Indeed, I agree totally. There must be some reason for the market not to work “properly”. I think it is most useful to identify the origin of these failures. Many here do not seem to accept the “classical” view of the market, but if we do, the a perfect market requires informed rational actors. If sexism is irrational, it cannot help but end up with a less than efficient outcome. Whether it is possible to intervene to achieve a better outcome is always a separate question.
But exactly where the sexism acts in the market is not so simple. For something like hairdressers the market is pretty competitive. There are barriers to entry, but not that high, and people do come to your home to do hair. It seems unlikely that salons are able to extract abnormal profits in this situation. Possible there are just more salons than there would be in the absence of sexism. Each salon owner is not sexist, but is taking advantage of a sexist situation.
From what I have ascertained from discussions here, some have the view that what we might call efficiency (or wealth) is maximised by whatever choices individuals make, even if this does not get them their desired ends. As long as they are free to make the choice, then the outcome is the best possible.
“After all, if the ignorance of alternatives on the part of female shoppers is the culprit here, including being “lulled into not doing anything about it,” then why is the gap in Speed Stick versus Lady Speed Stick 45 cents per ounce–as the article claims–rather than, say $10 per ounce? Why don’t dry cleaners charge women $1,000 to clean a blouse, if they have such power to engage in discriminatory pricing?”
Surely you can think of an economic explanation for this? If one is “lulled into not doing anything about it”, there is going to some point at which one is prompted to do something about it. Speed stick may have discovered that 45c difference is the optimum.
Why can supermarkets charge a little bit more for products at eye level? Why not charge loads more? If they charge loads more, then people are sufficiently motivated to use their time to examine other products.
If there is a willingness by women to pay more for the same thing in a pretty package, then all businesses in the same sector would have to take advantage of it. Competition would then force them to lower the prices of men’s products until normal profits were restored.