Cool News has an interesting article today – Costco Confusion. In it, Tim Manners explains how what looks like a good deal at your local Costco or Sam’s Club, may in fact be cheaper elsewhere.
Even though we now have the ability to compare prices across channels – something economists call “perfect information” – we still make stupid buying decisions and overpay for products. Quoting from an article on the same topic in the NYT, he says it is because “we can only focus on one thing, and that one thing tends to be a distraction. At Costco, “the very size of the product is the distraction.” If it’s that big at that price it must be a bargain, right?”
While it is easy to agree with that, another possible factor is that we tend to buy things that we did not research or even intended to buy when going on our weekly or monthly trip to Costco or Sam’s. And once we’re there, it is really hard to start comparative shopping from your cell phone – even if you have an Internet enabled phone with a larger screen. And besides the bulk size of the items – which indeed implies a bargain – some retailers like Staples will have signs promoting their price match policy – giving you another false sense of “security” when you buy an item.
Buying at a higher price than what might be available elsewhere happens probably more often when a buyer is making multiple purchases at once – as is the case with groceries or office supplies. When a buyer is buying a single item, say a car or a camera, they are probably more likely to go where the best bargain is.
Well, as pointed out in the article, and based on interesting research done by Hahn Lee from Stanford and Ulrike Malmemndier from UC Berkeley, this may not be the case. They studied auctions at eBay and found that “in a majority of auctions, the final price is higher than a fixed price at which the same good is available for immediate purchase on the same web page.” The longer the listing period, the more overbidding occurs, and the most experience bidders are most likely to bid sub-optimally (download pdf here)! It is like gambling. The funny thing is that overbidding has been a known side-effect of auctions for a long time.
So all in all it seems like there are still many ways left in which to get an premium price for an item which is widely promoted with a lower price elsewhere…