A nail salon has made national headlines recently by charging an overweight customer an extra $5 because they were over the official weight limit of the pedicure chair, which can cost $2,400 to fix. This has been called price discrimination, and has been compared to the practice of dry cleaners to charge more to clean women’s clothes than men’s clothes even though the cost to the cleaner is the same.  But in order for something to be price discrimination, the price differential has to be greater than is justified by different costs. In fact, if it costs more to serve an overweight person than a not overweight person, then charging them the same is price discrimination.

The FindLaw blog Free Enterprise does not appear convinced by the different underlying costs justification in this case, because:

…it is difficult to see how a $5 surcharge, unless charged hundreds of times each day, would help defer the over $2,000 dollar cost of fixing a broken chair. In the long run, the negative publicity the salon is receiving may end up costing much more.

But the negative publicity costs are probably why the charges aren’t higher for overweight customers. This constraint on the store’s price setting means underlying cost differences may be much larger than $5. The marginally higher prices for overweight customers will recover more of the underlying costs and are therefore less price discriminatory than when everyone is charged the same.

So is this type of differential pricing a “good” thing? I won’t weigh in on the morality of the issue, but at a first pass it does seem more efficient. However, if other customers value going to a salon that charges everyone the same regardless of weight, than they may find another salon to go to. This is the long-term PR cost to the firm. In this case, as in many other real life cases, otherwise efficient differential pricing based on personal characteristics may not be efficient when you consider that customers have preferences over these pricing issues aside from any direct monetary benefits or costs to them. This is why market outcomes can be “fair” without regulation despite the fact that narrowly defined self-interest may predict “unfair” outcomes. People value what they see as fair business practices, and they are willing to pay for it.

About these ads