When a consumer is buying concert tickets online or making reservations for hotel or vacation lodging, it is common for the initial posted price to be quite different than the final cost. At checkout, the purchaser is confronted with obligatory fees such as in the illustrated Airbnb case—cleaning fees, service fees, occupancy taxes, and fees. The industry terms this practice “drip pricing.”
Four nights at an Airbnb in San Luis Obispo, California at $250 a night comes to a total of 1000 dollars—right?
Nope—that’ll be $1,348.
On July 7th, the New York University School of Law’s Institute for Policy Integrity submitted a petition to the Federal Trade Commission (FTC) calling for the Commission to “initiate rulemaking to ban drip pricing as a deceptive practice, unfair practice, and unfair method of competition.”
Drip pricing, according to Policy Integrity’s petition, is “the practice of advertising only part of a product’s price upfront and revealing additional charges later as consumers go through the buying process.”
According to Washington Post columnist, Christopher Elliott, “drip pricing typically raises the final cost of a purchase by 20 percent or more.”
The petition cites several complaints about drip pricing.
- Comparison shopping is difficult because consumers are spending too much time making purchase decisions.
- Pricing strategies lead to higher costs for goods and services.
- Opening prices are misrepresentations because they omit hidden mandatory fees.
- Consumers, looking for bargains, are diverted away from merchants who disclose full prices upfront.
According to the petition, the benefits of a ban on drip pricing are:
- Purchase decisions are best when consumers are well-informed and not deceived.
- Transactions are efficient and consumer time is minimized.
Policy Integrity’s proposal to the FTC states that sellers should be “required to prominently provide the entire price to be paid by the customer—inclusive of all unavoidable fees and service charges.”
At the beginning of the transaction illustrated below, the customer sees $1603. In the end, $2272.96.
At this writing, I left a voice mail with the Institute for Policy Integrity asking them if they have heard from the FTC and, if so, where does their petition stand?