Wednesday 28 July 2010

Tight Fist Tip #42: 5 Activities Destroyed By Suits With Expense Accounts

Public Enemy #1

Damn Suits seem to be everywhere these days. In London, they basically own the place, driving up the prices of bars, cafes, and restaurants for a wide radius outside their lair, the City of London. But worst are the Suits who love to jump on planes and ruin things for people in other cities. They flaunt their corporate credit cards without regard for prices, making certain items unaffordable for the rest of us. As a dedicated Tight Fist, you must learn to recognize these items and avoid them at all cost. Here are some examples:

1. Airport Food - With the long trip to the airport and the prospect of a long foodless flight, your time at the airport should be a great opportunity to get a snack and maybe even a beer. But why should airport restaurants serve food for the masses when instead they can defraud corporations of millions via expense accounts? The other day in the Toronto airport I saw a measly piece of 80% water ham stuck in between Wonder Bread for 11 bucks. Highway robbery! Note that certain chains buck this trend and charge standard prices at the airport. Shout out to Pret, Eat, and Boots (all in the UK) for not reaming their customers!

2. Hotel Bars and Restaurants: If you arrive late at night in a new city, sometimes the easiest place to eat is a local hotel as their restaurants are open late. But be careful! Have a close look: Are there any Suits? If so, run away! Any hotel that caters to business travelers is going to bump up those prices for the expense accounts. Remember, Suits LOVE to drink at the hotel because they can just add the drinks to the hotel bill and expense away.
And This Is Why Dad Had to Sell A Kidney

3. Airport Internet - There are certain times when it would be really useful to have internet. Like if you're flying to a new city and you need to figure out how to get to your hostel or maybe your flight has been delayed and you need to alert a friend. And isn't it great that now most airports have WiFi? Just load up the page, connect, and WHAT!?!? 10 BUCKS FOR ONE HOUR! HOLY CRAP! That's right, what could be an extremely useful service is ruined again by the Suits. Quick shout out to Dubai airport for having free Wifi- the last of a dying breed.

4. Taxis - Thanks to Suits, these motor armies crowd the street and cause havoc for cyclists, yet are too expensive for normal people. You might as well just read my full post about stupid taxis.

5. Cell Phone International Roaming - As any good Tight Fist knows, you have to turn off your cell phone (or find a local SIM) as soon as you leave your country. But why does it have to be this way? Surely cell phone carriers could charge a reasonable rate such that normal people would use their phones abroad, thereby increasing their profits. So why don't they? You know, I don't think it takes a genius to figure this one out. IT'S THE SUITS! Since the company pays for the cell phone, they could care less about the roaming charges, making it more profitable for the companies to keep the rates high.

6. Hotels and Airport Express Trains: Yes I know I said there were only five, but hotels in general and all things that hotels sell also fall into this category. (Read my previous post about hotels here.) Ditto with Airport Express Trains.

Damn Suits.

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  1. Interesting, I'd never thought about this.

  2. I was in singapore a few months ago and I was about to buy a local simcard at the airport. The price was around $59 sgd. Outside the airport it was way cheaper.

  3. You've just become my new favorite blog.

  4. I just spent the last hour or so reading through all your content starting with this post and working my way backwards.

    It made my night... and I was already having a pretty awesome night.

  5. Thanks guys- glad you're enjoying it!

  6. It's interesting that the opportunistic vendors aren't blamed, just the suits.

    How would you explain exorbitant prices at amusement park concession stands?

  7. Hey Anonymous, thanks for the interesting questions.

    First of all, I really don't think it makes sense to lay the blame on the vendors, even though they certainly are being opportunistic. Unless you think that profit maximization (which is the cornerstone of capitalism) is amoral, it's difficult to blame on any business for setting optimal prices given their situation. As long as there are people willing to pay high prices, business will charge high prices. If you start thinking that is 'wrong', then suddenly millions of prices are 'wrong', and the only way to ameliorate this problem is to set prices centrally which has historically been a pretty bad idea. (See the decline of the USSR as exhibit A). I There are some special cases where you can make a moral case (like price gouging of water after a natural disaster), but in general I'm happy to let businesses charge whatever they want.

    As for the comparison to amusement parks, I really think that these two situations are fundamentally different, even though they both result in annoyingly high prices. At an amusement park, all the concession stands are run by the park, resulting in monopoly pricing for food. This results that are too high compared to a situation where there was some competition. But at least prices are still somewhat controlled by the fact that people are going to be sensitive to the prices and will buy less food if prices are too high.

    At say, an airport, things are a bit different. Here all the shops are run independently, so there is at least some competition. As there are limited options there is probably still some element of monopolistic pricing, but the expense accounts really add another element to the mix. At the airport, a huge proportion of the customers are not paying for the food they buy and therefore don't internalize the prices at all (economists would say there is inelastic demand). This allows restaurants to charge high prices, since raising prices doesn't lower the amount of food that the Suits will purchase.

    In the end, the high prics of airport food probably is a result of both these elements. But in what proportion? Well, that's a really interesting question. In order to test it you'd have to find a situation where expense account incentives suddenly changed and see how this affected airport prices. For instance, let's say we were looking at the airport in Bentonville, Arkansas, where the vast majority of travelers are going to be Wal-Mart employees. Now's let's say Wal-Mart suddenly changed their expense account policy, stopping reimbursing travelers for travel expenses and instead paying them a fixed sum for travel (where they can keep whatever is left over). If airport prices then lowered, we could be pretty confident that the expense accounts were driving the high prices. Man, I'm starting to think that maybe I could figure this out. Anyone have any ideas of places where this might have actually happened? Maybe I should just ask the Freakonomics guys to work on it and tell me what they find.