2010-09-03

One Outrageously Uninformed Yahoo! Article

I was browsing through my Yahoo! homepage and stumbled upon this article. I looked through the 6 outrageously overpriced items, and I do agree with all of the choices. I suppose that for an article targeted at total laypeople, I can understand why things like "paying for the label" might not make sense at first; that said, I am still astounded as to how a financial article doesn't (appear to) understand why these prices are actually so high. Let's start from the top.

Movie Theater Popcorn

The article here asks why the markup for a bag of popcorn at the movie theater is a factor of six compared to the price for a similar product at a supermarket. It claims to not know the answer to this.
The answer is that in a movie theater, there is nowhere else to get popcorn, and moviegoers like the convenience of buying already-cooked popcorn (as opposed to having to cook and pack their own popcorn). The theater owners have a near-monopoly over the popcorn market inside the theater (as enough people would rather pay more than spend time making their own popcorn), so theater popcorn will of course be more expensive.

Greeting Cards

This follows a similar vein as the popcorn case, though here the card sellers don't have quite as close to a monopoly over the market. For ordinary people, time is precious, and they believe the higher price is a worthy tradeoff for the time saved compared to making a card by hand (after all, one has to buy similar quality paper and pens and think of a witty message (and maybe even a drawing)).

College Textbooks

This is one place where I'm also not sure why the products are so expensive, given the presence and ubiquity of used-book shops (both online and brick-and-mortar) and the rising influence of book rental companies. That said, do consider that prices of goods like cars have experienced similar increases over the same period of time (according to this, the average price of a Ford Mustang in 1985 was $7286, while the current MSRP of a Ford Mustang (2011) is just above $22000). While the increases may be for different reasons, I think it can be partly attributable to plain-old inflation.

Bottled Water

Despite the numerous reports that bottled water is usually packaged unfiltered tap water, perceptions do linger, and the leading perception is still that bottled water is of higher quality than tap water (and, by extension, that tap water is of poor quality). Hence, people would rather pay for the convenience and higher quality of bottled water than spend time filtering tap water and refilling a reusable bottle.

Printer Ink

There are two reasons for this one. One is that there's no alternative to printer ink sold (except to buy another printer). The other is that printer manufacturers lose money on every printer sold, so they recoup it by putting huge markups on printer cartridges. This is also why video games on current consoles still cost $60 even though the disks themselves cost next to nothing to actually produce.

Brand-Name Fashions

Isn't this one obvious? Most of these labels have established reputations, so customers really are willing to pay for the label. It's Microeconomics 101.

I also find it shocking that the material for this article was provided by Investopedia. Why are they writing articles?

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