My dry cleaner charges $1.65 to clean and press a man's shirt and $5.25
for a woman's blouse.
What's going on here?
The laws of arithmetic allow only two possibilities. Women's clothing
must be associated either
with higher costs or with higher profit margins for the dry cleaner.
Unfortunately, neither theory
seems terribly plausible.
Let's start with the "higher cost" theory. In its most naive form, this
theory predicts that if I move
the buttons on my dress shirts from the right side to the left, the
cost of laundering them will more
than triple. That one's not going to fly. So, to give the theory a
fair chance, we have to look for
more significant differences between men's and women's clothing.
Well, like what? You could argue that women's clothing is typically
made of more delicate fabrics
than men's. But if that's the relevant factor, why don't dry cleaners
just quote different prices for
different fabrics? (For some materials, such as silk, they typically
do quote separate prices. The
question is why this practice does not completely displace that of
distinguishing between men's
clothes and women's.)
An alternative version of the theory is that women's clothes are costlier
to process because women
demand higher quality work. I can't disprove that version, but
I have no real evidence to support
it, either. So, in a search for better alternatives, I called three
different dry cleaners and asked for
their explanations. The first said that men's shirts are machine pressed,
while women's are hand
pressed. That left me wondering why they don't simply quote different
prices for different kinds of
pressing. The second said that women's shirts require specialized treatment
because they are
typically doused with perfume. That left me wondering why men who use
after-shave are not
chronically dissatisfied with their dry cleaners. The third said that
this was their pricing policy,
and if I didn't like it, I was free to shop elsewhere.
I n the absence of a clear, convincing story about gender-specific costs,
let's see what kind of story
we can tell about gender-specific profit margins. In other words, let's
ask whether my dry cleaner
is exploiting female customers through higher markups.
To make sense of that theory, you have to ask why dry cleaners would
want to discriminate
specifically against women, as opposed to, say, men. That strategy
makes sense only if men are
more price-sensitive than women and hence more likely to walk away
in the face of a high
markup. But why should men be more price-sensitive? You could argue
that men are less diligent
about cleanliness and so more likely to respond to high prices by wearing
unlaundered shirts. But
as long as we're dealing in stereotypes, you could argue equally well
that women are more willing
to do their own laundry--in which case women would be more likely to
walk away from a high
price, and it would make more sense to discriminate against men.
So it isn't clear which gender is the more natural candidate for getting
soaked at the cleaners. But
there's a more fundamental reason to doubt that either gender can be
victimized by price
discrimination, and here it is: There are over half a dozen dry cleaners
within easy walking
distance of my house. If they're all earning higher profits on women's
blouses than on men's shirts,
why hasn't any of them decided to specialize in women's blouses?
Let me make that more concrete. Suppose the going prices are $1.65
for a man's shirt and $5.25
for a woman's blouse, even though (under the theory we're currently
entertaining) they are equally
expensive for the cleaner to handle. Then if I were a dry cleaner,
I would announce a uniform
price of $5 for all shirts and blouses--thereby attracting all the
women's business and none of the
men's. Because nobody has adopted that obvious strategy, we should
suspect that despite
appearances, the profit margin on women's clothing can't be much higher
than on men's.
In fact, the process wouldn't stop there. As soon as I announced
a uniform price of $5, my
neighbor would announce a price of $4.75. Ongoing competition for the
(temporarily) more
lucrative women's business would quickly eliminate any profit differential.
That argument rests on the fact that dry cleaners are highly competitive.
If Microsoft ran the entire
dry cleaning industry, it might very well choose to discriminate against
women (or men,
depending on market conditions). But in the world we live in--or at
least in the neighborhood I
live in--there are so many interchangeable dry cleaners that none of
them should be able to get
away with exploiting anyone.
One of my colleagues' wives insists I've got this wrong--she says she's
so loyal to her own dry
cleaner that no discounter can lure away her business. If most customers
are as devoted as she is,
then each dry cleaner is like a mini-Microsoft, with its own captive
customer base. In that case,
price discrimination can survive. But I am instinctively skeptical
that many customers are as
fanatically loyal as my colleague's wife.
The theory that only a monopolist can price discriminate is standard
textbook fare, and it's borne
out by a lot of observations. Movie theaters have a certain amount
of monopoly power (on a given
night, a given moviegoer is likely to have a strong preference for
a particular movie at a particular
theater), and they price discriminate by offering discounts to senior
citizens (which is equivalent
to discriminating against everybody under the age of 65). Airlines
have even more monopoly
power--once you know where and when you want to fly, you are likely
to have an extremely
limited choice of airlines--and they heavily discriminate against business
travelers by charging
more for midweek flights than for weekend flights (when most travel
is for leisure).
By contrast, in the most competitive industries, there is no price discrimination.
As I am fond of
pointing out to my students, you've never heard of a wheat farmer who
offers senior citizen
discounts. Likewise for gas stations, which are ubiquitous and sell
to everyone at a single price.
Well, at least that's what I used to tell my students. But I might have
to make a small change in my
lesson plan. The gas station nearest our campus has just announced
a policy of senior citizen
discounts on Wednesday afternoons. Is this price discrimination in
favor of seniors, or does it
reflect a genuinely lower cost of serving them?
I f you push me hard enough, I can probably concoct some kind of story
about lower costs. Maybe
seniors tend to drive cars with bigger gas tanks, so they buy 20 gallons
at a time instead of 10,
thereby saving on the cost of processing credit cards. (A significant
part of that cost is the time
spent waiting for the card to be approved, during which the pump is
unavailable.) But if this cost
saving is significant, why has only one local gas station recognized
it? And why is it significant
only on Wednesdays?
I have suggested to my colleagues that none of us should be permitted
to present ourselves to the
world as economists until we figure out what this gas station is up
to. Nobody has risen to the
challenge. A few have suggested that perhaps the gas station owner
is just a little quirky. Maybe
that's right. But it would be far harder to believe that the entire
dry cleaning industry is just a little
quirky. Either there is enough monopoly power to sustain price discrimination,
or there is some
reason why women's clothes are incredibly expensive to clean and press.
But I have no idea
which. |