Saturday, April 15, 2006

Charging, Over- and Under-

There's an interesting article in the April 15th issue of the Economist (unfortunately, not linkable; they deem it 'premium content') about the likelihood of getting over or under charged for specialist services. The article is based on a paper by Dulleck and Kerschbamer on the subject of purchasing credence goods when the purchaser doesn't know what they want or need -- for example, when you go to the garage and say 'its making a funny noise' or you go to the doctor and say 'my stomach hurts'. You're relying on their expert knowledge to diagnose and resolve the problem, but you're also relying on their honesty -- the noise could be a loose screw or a loose engine mount; the pain could be indigestion or an ulcer. When you don't know, how can you accurately choose, how can you accurately judge? The saving concept seems to be that overcharging tends to occur when the vendor is looking for revenue -- ie, needs to earn more. When they are busy, they have no need; when they are not, they do. The concluding sentence of the article says it: "If you are worried about being cheated by a taxi-driver or a mechanic, pick the busiest one you can find."

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