Topic: Business & Commercial
The Price Change Dilemma
I recently recalled one of the
unpleasant incidents of my childhood that I had managed to nearly forget.
I decided, at the age of 12, to renew my long-expired membership to the
local Boys Club, and made a pilgrimage to the ramshackle building that
had been the clubís local home since it was first established. I paid
my ten bucks for a yearís pass to the hand-set bowling alleys, the arts
and crafts classes and the basketball court, then returned home with my
shiny new card, good for 12 months. A week later, I arranged to meet a
friend at the club, but when I got there, it was closed...in fact, a sign
announced that the old building would be torn down, and a new, modern,
larger one would open in 18 months. The club had taken my money
to renew a membership that was good for about twenty minutes!
I remembered this as I listened
to my wife complain about buying a tank of gas only to see the prices
change on the sign, becoming cheaper, as she left the station. Didnít
the gas station, she asked, have an obligation to let her know that if
she waited just a few minutes, the price would be lower?
This is a more difficult question
than the one raised by my Boys Club debacle. I have had the experience
of buying a suit at full price, only to learn later that a half-price
sale began the next day. I have also had a the experience of being alerted
by a salesperson that if I put off my purchase for a day or a week, I
could get the same item at a substantial discount. Then there is the common
situation of last minute discounts for commodities that others purchased
earlier at full price. A subscriber to a theater, a loyal patron, discovers
that the person sitting next to him paid half as much on the day of the
performance as the subscriber paid weeks in advance. The parents of a
student at an expensive private school are chagrined to learn that the
school is attempting to fill its remaining class slots by offering them
at a deep discount.
Is this right? Is it fair?
One thing for certain: price changes
in response to changing conditions are unavoidable. At a 24 hour establishment,
the prices will change during a period when customers are making purchases.
Would it be more ethical for a gas station, for example, about to lower
its price, to always wait until a set time every day to execute the change?
You can see the problems with this: the station would be over-charging
as it waited for the allotted time, and it would also be placing itself
at a competitive disadvantage with stations that put lower prices into
Prices go up and down in response
to supply and demand. Nobody buying shares in the stock market argues
that itís ďunfairĒ that they bought 100 shares of General Electric stock
at one price and, because the price fell, someone else could buy the same
amount more cheaply a few minutes later. This is because they know thatís
the way the stock market works. Airline passengers who buy full fare tickets
donít feel cheated when stand-by passengers get tickets for less, because
they are used to the system. But if someone right ahead of me in a supermarket
line was charged $8.00 for a 1.6 pound steak and I got charged more because
the price had gone up while I was in the store, I would feel cheated,
even though I hadnít been. Unlike my Boys Club membership, I would still
be getting what I paid for at the price I expected. Itís just that someone
else seemed to be getting a better deal.
The dilemma reminds me of a situation
that I have found perplexing whenever I have had to hire a staff. I would
offer two similarly qualified candidates essentially identical jobs. I
would have some flexibility in negotiating the salary package, and because
I had a budget to meet, would begin salary negotiations by offering each
the lowest, rather than the highest, salary within the range. What were
my ethical obligations if Candidate A accepted the low figure---and seemed
very happy with it, too---but candidate B insisted on more? Should I reject
someone who was right for the job because another candidate was a poor
negotiator? Thatís not right, or logical. Should I treat the two negotiations
as entirely separate and end up with two employees with the same qualifications
and duties but disparate salaries? What if the employee who negotiated
the lesser amount was female, and the other male? What if the lower-paid
employee was African American? Even though an employer has every right
to negotiate the most advantageous contract with an employee as long as
it is fair and reasonable, the inequality, if it was ever discovered,
would look unfair, and even illegal. Eventually, I came to the conclusion
that the most ethical course was to raise the salary of the lower-paid
employee to that of the good negotiator.
This isnít an option in many of
the price-change scenarios, because it would be financially disastrous.
No menís clothing store would go back to its recent customers and offer
a 50% refund because it had just launched a store-wide sale. No theater
would tell its advance ticket purchasers that it would refund their money
because it gave away the last 10 seats for a performance free of charge
in order to have a full house, a practice called ďpapering.Ē There are
competing concepts of ďfairĒ here. It is fair to hold someone to the terms
of a transaction made in good faith on both sides. It is also fair that
each customer or purchaser of the same commodity under the same conditions
will get the same terms.
In these scenarios, the conditions are not the same. The wholesale price has gone down. A scarce commodity has suddenly become not scarce. The seller is faced with either getting half-price for a theater seat, an airplane flight, or a loaf of bread, or nothing at all.
It feels unfair to the person getting
the worse deal, but it isnít really unfair. Is the gas station owner supposed
to tell every motorist who comes in five minutes before a price change
to wait until the price goes down? Then whoever comes in six minutes
before the change will feel unfairly treated.
The closest thing to an ethical
solution here is candor and education. If customers and purchasers know
that prices are subject to change, that discounts and sales are going
to occur, then they should not and will not feel cheated. They need to
understand that part of the cost of purchasing a ticket in advance so
you are sure to have a seat is not having an opportunity to get a potential
discount by waiting until the last possible second. They need to accept
the fact that prices can go up or down, and when they buy ay a
given price, they are accepting the possibility that the price will fall
in exchange for potential benefit if it rises. Price changes arenít unfair
if everyone understands the system.
Iím still ticked off at the Boys