Tuesday, May 17, 2005

Take a free ride or be nickeled and dimed--it's up to you. Good article in the Sunday times on vendor's strategy of "shrouding" costs, aka to "nickel and dime": "Why That Doggie in the Window Costs a Lot More Than You Think". The article is based on the paper "Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets". What I like about the article is the interaction among sophisticated consumers, myopic consumers, and vendors: sophisticated consumers are subsidized by the profit that vendors make from myopic consumers. For example, credit card companies offer no annual fee credit cards, which give sophisticated consumers free credit because myopic consumers foot the bill with late fees and interest charges. It reminds me of a New York Times article from a couple of years ago: " It Adds Up (and Up, and Up)". The "Adds Up" article discusses how information services vendors break up costs into lots of small charges to make it difficult for consumers to see the Total Cost of Ownership. The nice IT implication is that the TCO for a product or service will depend very much on whether the ITO is a sophisticated consumer or a myopic one. 5:32:53 AM