Two pieces of TV news today. First, Alex Tabarrok is puzzled by the bizarrely high price of HDMI cables for Blu-Ray players:
Why don’t any stores stock cheap HDMI cable? I knew cables were a ripoff yet I could not find reasonably priced cables at Best Buy, Radio Shack, Target or even Wal-Mart. Ordinarily, we would expect competition to push prices down but in this case it seem as if the mere existence of Monster is anchoring high prices everywhere but online.
My best guess is that this is an unusually strong version of the hidden fee model of Laibson and Gabaix. In that model, firms overprice one aspect of service — such as a hotel charging exorbitant rates for telephone service — as an idiot tax. Crucially, the idiot tax is matched by an IQ-subsidy; the price of the hotel room is lower than it would be without the idiot tax — so the idiots don’t know to shop elsewhere and the high-IQ types are, in fact, drawn to stores with an idiot tax. Thus, buy your blu-ray player at places such as Best Buy which sell a lot of expensive cable as well as massively overpriced extended warranties.
Maybe so. Another possibility is path dependence: back when I managed a Radio Shack store (about 30 years ago), 10% of my store’s sales came from stuff like cables and electronic parts. However, they accounted for upwards of 50% of the store’s profits because the margins were fantastically high. We got away with this because the absolute prices were so low: people will shop around for the best price on a stereo or a computer, but they just don’t care about saving a few dollars on stuff like cables and batteries. The same thing is true for USB cables, which are bizarrely overpriced in places like Office Max or Staples, or high-tech razor blades at your local supermarket. My guess is that even now, when the price of things like cables and razor blades is high enough to make it worth shopping around, inertia keeps everyone thinking that this stuff is basically cheap and not worth hassling over.
But I admit that the lack of competition is still surprising. For a few stores to overcharge is understandable. Maybe even for most stores. But all of them? Last year I made the rounds of every retail store in the area after I got annoyed at the price of a simple Cat-5 network cable, and there wasn’t a single place that sold them for a reasonable price. Not one. It was almost like there was a cartel or something. (And the cartel worked! I didn’t feel like waiting the few days it would take to order online, so I went ahead and bought an expensive one. Their fiendish strategy turned out to be remarkably effective.)
And the second piece of TV news? Something that’s close to my heart: broadcasters have promised Congress that by September they will have standards in place that prevent commercials from being wildly louder than the TV programs they’re embedded in. Hooray! It’s only taken them 40 years to finally address this. “We get it,” an industry flack told Congress about loud ad complaints. “As a matter of pure economics, we do not want to lose viewers.”
The bad news, however, is that the industry’s sweet talk has convinced Congress to halt work on legislation to force broadcasters to address this. Too bad. Like the Do Not Call list, this is one of those things where ideology plays no role for me. I don’t care if this is liberal, conservative, libertarian, or anything else. I just want it to stop, and I don’t care a whit whether or not it’s a justified interference in the free market. JUST MAKE IT STOP!