Thursday, March 15, 2012

Phony Prices Give Corporations a Bad Name

The scandal about outrageous prices ($51 for two minutes!) paid by soldiers phoning the U.S. from a German airport is merely one more example of a more general problem: the proliferation of misleading prices advertised by businesses, or, as in this case, the absence of any announced price at all.

Years ago I was faculty advisor to a fraternity some of whose members cut down and stole a valuable blue spruce to use as a Christmas tree. They got caught. The tree’s owner said it was worth $600 and the guilty brethren coughed up this money to avoid being prosecuted . Buying a tree would have been cheaper.

Afterwards, I pointed out that one advantage of buying things is that you learn the value placed on them by their owners and, if you find that price excessive, you don’t buy. But this advice is worthless if the seller states a false price, or no price.

It is easy to find examples of false prices or no prices. At restaurants, for example, the waiter may announce specials of the day without informing diners of the prices, hoping that some diners will order without asking the price in order to avoid looking like cheapskates to others in their party.

On a grander scale, we find adjustable rate mortgages with low initial interest charges which always seem to go up, sometimes way up, after a year or two. Some of the recent housing meltdown was aggravated by interest increases that homeowners could not afford to pay.

Then there are hotels and car rental agencies which advertise rates without bothering to state the taxes which will be collected on top of these rates, taxes which are often substantial percentages of the advertised prices. Of course the customers are often from out of state and in no position to know what the state and local taxes are in the city in question. This is on top of the unannounced “fees” some even more unscrupulous hotels have been adding to their bills lately.

And how about TV cable or internet service providers offering bargain prices “for 6 months?” Or phone companies whose prices don’t include “taxes and fees?” Or TV commercials offering things for so many dollars “plus postage and handling.” Customers might be able to estimate postage costs, but “handling” is another matter, and sometimes exceeds the advertised price of the goods.

I won’t even comment on advertised airline fares or credit card interest rates!

Most of these practices are currently legal, but that does not make them right. One wonders if business executives are so obsessed with maximizing profits that they don’t care if they are giving their organizations a bad name. They obviously are not living by the Golden Rule.

It would be interesting to see if these problems could be ended by simple legislation without a lot of complications and loopholes requiring prices to be stated before any business transaction can occur, and requiring that all such prices be honest, “bottom-line” prices.


This article has appeared in the (Portland, Oregon) Oregonian, and the (Adrian, Michigan) Daily Telegram.

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