In my seminar on spontaneous order, the topic today was road design. One of the articles discussed experiments with variable rush hour pricing for certain lanes (in California, I think). The idea is that there is always a certain lane that will have 65 mph travel, but it might cost $20 to use it at 6 pm. Anyway, I explained other applications of this idea.For example, why don’t movie theaters operate like the opera, and have specific seats? That way, during opening weekend for a blockbuster, you wouldn’t have to get to the theater an hour early in order to have a decent seat.
Or what about grocery stores? With computerized cash registers, I think WalMart and other big chains should do the following: Have at least one cash register be a dedicated “No Waiting” one; no matter how busy the store, there is at most one person being checked out. This happens because above the register there is an electronic display indicating the surcharge that will be added to your tab after being rung up. The price gets raised until people in line at this register go to the other lines, and there’s only one person “on deck” waiting to get rung up at this register.
Now here’s the true innovation (I think I invented this, but for all I know I’m stealing the idea from Steve Landsburg or somebody and I don’t remember it): In order to prevent customer backlash against this greedy exploitation, WalMart (or whatever) doesn’t pocket the extra revenue. Instead, whenever a customer pays for his or her order at the special register, the surcharge is divided equally among the other customers being rung up at that moment.
For example, if there are a total of 21 registers open the day before Thansgiving, and the current surcharge for the special register is $20, then everyone at the other registers has $1 subtraced from his or her bill after the order is tabulated. This would reinforce the idea that the move is designed to help customers, not add an extra layer of gouging.
Why would the store do this? Because people would be more likely to shop at this store after the innovation. Again, with electronic cash registers, I don’t think it would be costly to implement. And after customers got over the initial suspicion, I think they would love it. And not simply for the novelty, but for the original purpose: If you’re in a rush, you can always pay in order to get checked out immediately.
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Sounds good to me in theory, although I think even the minimal costs for maintaining the new software, etc. would make the transfer of line-waiting subsidies less than 1:1.
Don’t socialist societies do this already, at their economic core? Shortages of service, lines, special deals for those willing to “pay a bit extra” to the government that then (theoretically) gets redistributed to those proles still waiting in the lines?
Such a thin line between love & hate…
Hey Bob,
It’s nice to see you posting more articles on the blog. Hows your class receiving your ideas on privitization?
I think the idea for the ‘pricing lane’ for stores is an excellent one – so long as the companies don’t get sued for some strange ‘price gouging’.
Vanmind – I don’t think this is at all like socialism. These products have prices to see what’s in low stock versus what isn’t. The creation of these products also came with the use of prices.
Here’s my favorite, an invention of my own arrived at during long hours (cumulatively) waiting to pay tolls at highway toll booths (the kind where six, eight, or more booths are arrayed across the road).
You pay more, the farther to the left you go: $5 at the extreme left, $2 next to the right, $1 next to that, and so on down to . . . what? Nothing?
Competition for the right-hand lanes MIGHT be pretty fierce (would involve actual shooting here in South Florida) during rush hours, but the low-priced lane would be reasonably available at off-peak times. And that fact would tend to incent people to schedule their own travels in off-peak times – WITHOUT the turnpike operators having to change their prices according to the time of day (as they actually do some places).
A similar scheme could be used at Bob’s Wal-Mart: a 10%-surcharge lane, a 5%, a “par” lane, a 5%-off lane, and a 10%-off lane for those with more time than money. Again, this would encourage off-peak shopping at the store, yielding superior asset utilization along with alleviating crowding. It would also obviate Bob’s complex “sharing” software, which no one would trust anyway.
This idea is a terrific application of marginal utility. Bravo to Bob!
This idea is actually very similar to a geoist/Georgist proposal for how to handle skyrocketing land values, so if you want to credit someone with the idea, they deserve some. Basically, the idea is that the government would collect the market value of the real estate (the full price of the land minus the cost of the permanent improvements), converted into the periodic rental amount by the formula rental=price*interest rate. The revenues are used either as a direct cash payout to citizens or to make public improvements that enhance land value. I don’t support the idea of course, but it’s similar.
The Georgist land value tax is the most atrocious tax I can possibly think of.
What do you do about the jerk who just stands there in line to intentionally drive up the price, with no intention of actually paying it?
I’ve personally implemented a much simpler version of the movie theater idea – if the theater is crowded, I just find someone with a good seat and offer them a dollar for it.
For example, why don’t movie theaters operate like the opera, and have specific seats? That way, during opening weekend for a blockbuster, you wouldn’t have to get to the theater an hour early in order to have a decent seat.
Pricing schemes like this are quite common in Germany.
http://news.bbc.co.uk/1/hi/england/staffordshire/3298789.stm“>England currently has one toll road that allows you to avoid congestion on the motorway.
I’m glad this generated such good feedback. A few responses:
* The students generally like the seminar a lot. As the semester progresses and I get more comfortable with them, I start cracking more and more jokes.
* I don’t know what you guys are talking about as far as the high costs of implementation. Grocery stores already have the cash registers tied into a central computer. E.g. when I was a cashier at a big chain in upstate New York (and this was ten years ago), they would rate every cashier’s performance by comparing speed of checkout (accounting for the fact that produce, say, takes longer to ring up than a box of cereal) and how many mistakes are made. And of course when the customers give their personal keychain or card to get scanned, the store’s computer collects all this information.
So the hardware is all there, except for the light to display the current surcharge.
* As far as problems, I don’t think you’d need to worry too much about somebody pretending to be in line, then leaving just for kicks. (Remember, we want people to leave the line except for one person.) I mean right now, when it’s free, people could still go stand in line at register 4, get to the front, then go get in line at register 5 and delay some more people. But who the heck does that?
* Silas, what in the @#)($*#($* are you talking about? First of all, if I haven’t read such a Georgist proposal, I don’t need to “credit” them. Second, I don’t see how this is related at all. What shortage does the Georgist land tax alleviate?
The Georgist tax is related because it implements this idea, but for land. Instead of capturing the premium associated with exclusive use of a register, it captures the premium associated with exclusive use of land. In both cases it’s distributed to people who will to accept an inferior service (slower lines or worse land). Thus, people get an incentive for freeing up a resource, which alleviates a shortage.
The selling point for shoppers is that if they are willing to pay to go through without waiting in a queue they can. What happens though if the queue hasn’t cleared at the exact moment the cashier is ready for them? You can’t tell people to go away. And now the “no waiting” queue is not as advertised. (Also, a member of staff is going to have to be monitoring the queue and stopping the surcharge monitor.)
Every minute customers are at the “no waiting” queue watching the price go up is a minute they are losing their place in a regular queue which they will then have to look for and get to (a chaotic scene at the best of time, particularly if the check out area of the store is small or badly designed) if the price is too steep for them.
Wouldn’t it just be better to have, for example, a standard $1 queue? Then people would know in advance how expensive the fee is going to be without the fear of losing their place in a regular queue. I would imagine that most people would realise the $1 queue is going to be shorter.
Anyway, you aren’t going to solve the problem of the total number of people waiting (in fact the process on the whole could take longer as people go to and from the regular queues to the “no-waiting” queues). To do that you will need to set up more cashier points or employ more cashiers at the busy times. Relative queue problems could be solved by having more “cash” and “10 items or less” cashier points. Maybe even a special cashier for “loyalty card members” or the like (with an incentive for loyalty or being a big spender being quicker checkout times).
Anyway, you aren’t going to solve the problem of the total number of people waiting (in fact the process on the whole could take longer as people go to and from the regular queues to the “no-waiting” queues). To do that you will need to set up more cashier points or employ more cashiers at the busy times.
Of course. But what I’m saying is, for a given number of cashiers, shoppers might be better off if one or more of the lanes had a surcharge.
So yes, if there are 100 people who need to be checked out, and they all have carts with the same amount of stuff, and there are 10 cashiers who take 5 minutes to ring up each shopper, then it’s going to take 50 minutes to get everybody out of the store. We also can say that ten people will wait 5 minutes, 10 people will wait 20 minutes, 10 people will wait 30 minutes, etc. There’s no way around this, given the numbers.
However, the way it is now, the identity of the first 10 people is decided randomly–the people who happen to get to the registers first.
Now suppose the 100 people are randomly in lines, and I tell you that some people near the back of the line would be willing to offer the people at the front up to $20 to switch spots in line, while some people in the front would be willing to switch spots if they were paid at least $15. There is now a gain from trade that is not normally exploited because of the transactions costs.
So my idea just allows these exchanges to take place much more smoothly.
Finally, I don’t know why Joe Potts is questioning the reliability of the scheme. If the surcharge sign says “$20″ while you’re being checked out, and there are five other people, and then your receipt says, “You saved 20 cents because of our new system!!” you’ll know it’s bunk.
In California, I recently noticed all kinds of signs in supermarkets saying something like “If you are charged a higher price than the lowest marked price for an item, it is illegal.”
I suspect there is a minefield of “consumer protection” laws involved in groceries…
Bob, I see a sort of “problem” with the ratios you chose for your registers, the price and the pay out.
If there are 20 registers giving 1 dollar back, and 1 register taking in 20, the average number of customers would have to equal in each register for the scheme to break even. If that were the case, people would have no incentive to pay the $20. And generally, the system would make more sense if it was based on the number of items or a percentage of their cost as the time it takes to check a person out is based on that.
Also Bob, Landsberg is a terrible economist and is likely to have a pernicious influence on your work.
I like the idea of “premium” cash registers. However, I don’t see why it necessarily has to involve a redistribution to other customers. Yes, a store might want to try that to see if it attracts more customers, but just about any profitable system will probably be considered price-gouging by many.
But the specifics can be worked out “by the market” (or did you know that I was already going to say that?
). Home Depot and Wal-Mart already offer self-check out registers, but they’re such a bother that they really ought to offer a discount to customers who use them.
Of course. But what I’m saying is, for a given number of cashiers, shoppers might be better off if one or more of the lanes had a surcharge.
I see that and was just referring to the title of your blog item, “Eliminating Grocery Shortages.”
What I don’t get is when the number of people in the “no waiting” queues isn’t cut down to one remaining. For example, you could have two people who are willing to pay what is on the surcharge monitor (or even when the second person is willing to pay more) and the second person is waiting for the first to fold first. Then the store’s no waiting queue does involve waiting. What then? Perhaps they can bid for it or come to an agreement amongst themselves. But then the whole assumption of no-waiting is rendered void. People might be less happy with negotiating or bargaining with each other and then would still be left with having to had waited.
As for the exchanges you cite between those in the front and back of a queue. It is one thing for them to swap for a price but by the person in the back going to the front he/she is in fact going in front of all the other people in front and on this basis would have to pay them money as well. I know when people join friends at the front it riles people and it could get a little out of hand.
Anyone around here own a grocery store to use for an experiment?
Silas wrote:
The Georgist tax is related because it implements this idea, but for land. Instead of capturing the premium associated with exclusive use of a register, it captures the premium associated with exclusive use of land. In both cases it’s distributed to people who will to accept an inferior service (slower lines or worse land). Thus, people get an incentive for freeing up a resource, which alleviates a shortage.
Well, I guess I still don’t see the analogy. Valuable land already has an associated price to ration it–the price of the land. People don’t have to wait in long lines in order to gain access to fertile land, they have to pay high prices. There is not a shortage of valuable land, in the sense that quantity demanded exceeds quantity supplied. (There’s scarcity of course, but nothing will eliminate that.)
(Incidentally folks, I know Silas from our debates on the anti-state forum. Not that this justifies my initial flipping out at his first post, but it at least explains it somewhat. I.e. I didn’t go nuts at some stranger who commented on my blog post.)
Generally, I don’t deny that there might be some logistical problems with my proposal, especially in the beginning. But I think a lot of the objections raised here are a bit silly and/or misunderstood the proposal. E.g. the store doesn’t need to worry about not breaking even; the rule is that people get paid out of the “pot” generated by the people in the special line.
Further, the idea is that the person running that register (or some other overseer) just keeps raising the posted price so long as there are more than two people waiting in the line. There’s nothing really strategic involved, unless all the shoppers collude to keep the price down. But since usually I imagine the price would be under $5, I don’t think such a cartel would hold up.
Finally, it’s true that it might not literally be a “No Waiting” line because of the mechanics of it; you might have to wait for one person ahead of you occasionally. But by the same token, the “express lines” aren’t always very “expressy.”
Well, I guess I still don’t see the analogy. Valuable land already has an associated price to ration it–the price of the land. People don’t have to wait in long lines in order to gain access to fertile land, they have to pay high prices. There is not a shortage of valuable land, in the sense that quantity demanded exceeds quantity supplied.
Then I think I don’t understand. By the same token, valuable registers already have an associated price to ration them: the price of the goods in the store. That’s why people don’t have to wait eight hours or something, and why goods cost more in high-density areas. Your idea would further apply this concept: instead of people choosing among stores based on how fast their lines generally are (trading off price and speed of checkout), then can now pay directly at the register for speed at that register. Similarly, a land value tax would (ideally) further apply the existing price rationing mechanism by making landholding even more costly and giving people greater incentives to forgo use of good land.
Silas wrote:
Then I think I don’t understand. By the same token, valuable registers already have an associated price to ration them: the price of the goods in the store.
No, the price of the goods in the store are the prices of the goods in the store.
Yes, you’re right in an indirect sense: A certain store could always have a bunch of cashiers on hand, and could charge higher prices for its products to cover this. Then customers who would rather pay more for speedier checkout would patronize this store.
But this isn’t a very close matchup between the actual good (speedier checkout) and the associated price (higher food prices)–it would be like charging the same price for every parcel mailed, no matter how heavy. Yes, the post office could come up with such a rate that would allow it to stay in business, but then you’d have fewer people mailing letters and more people mailing heavy boxes etc.
But again, since land already has an explicit price, the Georgist tax doesn’t do anything. E.g. if the land price is $100,000, and the Georgist tax is $1000, then why wouldn’t the original land price just go up to $101,000? There’s nothing analogous to this in my grocery example.
Are you familiar with the fact that Milton Friedman talked about airlines paying people to get bumped when the flight is oversold? After Friedman and other economists talked about how this would be more efficient (than simply randomly bumping people and giving them a preset compensation), he said that the airlines must not be doing it because of transactions costs or something they weren’t thinking of. It turns out that it really was a good idea after all–and now that’s how airlines deal with oversold situations.
Alright, I’ll quit trying to shoehorn the Georgist idea. But I still think you’re underestimating the extent to which grocery stores already compete on waiting time. Where I live, there are two chain grocery stores that have consistently long lines and low prices and two that have consistently higher prices and short lines. But maybe I’m just attributing more meaning to that than I should.
Regarding Friedman: no, I didn’t know that. I definitely think this could be the same situation. I think your idea has a very good chance of catching on. Maybe I’ve been a little miserly in my praise of your idea in this thread. If so, for the record, your idea is awesome.
Or, you could try it for charity … for instance, after the Tsunami, reserve one lane with the sign “This lane adds $5 tsunami relief to your bill.”
There’s less in it for the other customers, of course, but you could still get out faster for an extra $5 if you’re willing to pay it. And the customers would likely be less upset.
How about a sign that could be used for years: “In this line an extra 10% gratuity will be added to your bill for distrubution among our employees.”
Many customers would go for that if the line was indeed shorter, plus the company might be able to keep unions at bay. Walmart or some other large retailer should try this idea if only for the PR mileage.
In fact, I could be persuaded to take ten ounces of e-gold as a consulting fee, deposited to account number 1974240. Thank you for your patronage.
Silas wrote:
Regarding Friedman: no, I didn’t know that. I definitely think this could be the same situation.
Oh, it’s an interesting tale. I don’t know if it’s online anywhere; maybe you could try googling “Milton Friedman airline oversold” or something. Just to clarify: Right now when a flight is oversold, they ask for volunteers to give up their seats in exchange for vouchers etc. They keep raising the offer until they get enough volunteers. Before, the airlines would just bump people and give them a preset compensation. The former method is more efficient, assuming transactions costs of the new market are low enough.
Another example that occurred to me: In a cafeteria, you can either get rung up at the end, or (as in many schools) pay a one-shot admission fee. There are fewer “markets” in the latter case, and so familiar shortages/surpluses result. E.g. at Pizza Hut, if you get the buffet, generally you have to settle for the type of pizza that is closest to what you want; the minute a pepperoni hits the buffet, people clean it out.
So as these examples illustrate, in the real world it’s possible to have “missing markets” because of transactions costs; Pizza Hut isn’t stupid–they make money on the buffet. But what I’m saying with WalMart is maybe they just never thought of my proposal.
I think your idea has a very good chance of catching on. Maybe I’ve been a little miserly in my praise of your idea in this thread. If so, for the record, your idea is awesome.
That’s all I’m looking for here…(j/k)
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