Chapter 2 of The Undercover Economist has some very interesting thoughts behind it. The chapter deals with supermarkets, and similar consumable goods, and how companies try to maximize profits and customer’s preferences and willingness to pay. This chapter raised questions of Why is the variation in coffee prices some wide? Why do I pay so much more for organically grown food? Why does it always feel like more money at Whole Foods? All these questions are asked be each of us when figuring out why we spend so much. If we grab the cloak and dagger and go undercover along with the author we may be able to cut out some of these everyday costs we each incur.
I go shopping at a grocery store twice a week, more or less, and do all my shopping at Safeway because I think its cheaper. Safeway is an old store with dimmed lights and broken machines. It feels cheap and dirty. I also see the clerks and stockers putting sale prices on items. I must be getting the best deal, they don’t even have the money to fix their machines. Yet the author Tim Harford explains why it seems so much more expensive at Whole Foods: choices. At my corner Safeway I have two choices of onion red or white. But, as he explains, Whole Foods has pearl, yellow, organic, etc. with some of these varieties costing much more per unit. But when I was walking through I picked the onions that looked the best; I wasn’t shopping for the best price. If he is right I fell victim to price discrimination. Whole Foods saw me coming, and not me as a person but me as a group of shoppers.
Whole Foods, like any other business, is trying to maximize profits. Now Whole Foods knows that if they charge any difference between them and Safeway for regular white onions they will not sell any, or very few. But if Whole Foods leave items the Safeway has at a similar price if may get my walk in business: Whole Foods being a different experience. Since Whole Foods can’t charge a higher price for the same item it must offer a subtle difference to the product and then charge more. Now my group of shoppers looks at my regular white onions and the pearl onions. Well I have never had pearl onions and they have a higher price, maybe pearl onions are better or better for me. Since Whole Foods offered me a choice they gave me enough “rope” to hang myself. Whole Foods provided a similar item to my Safeway, white onions, and at a similar price, but they also included a “luxury” onion. I traded my white onion for the BMW of onions just because it was presented.
If I can tell this about myself then I can take that information to make future actions. How do I still make choices without always buying the BMW instead of the Toyota? To fully understand a purchase I need to look at alternatives. This becomes hard to do because of the cost of doing it in time and energy. If every onion I purchase has to be compared to every onion on the planet it would be ages before I could eat my an onion. I need instead to simply look at the choices presented. While in Whole Foods, for example, I need to pay attention to the price differences of similar items at that store. But to make sure I am not paying to much compared to another store I must go “undercover”. I will also need to go back to my local Safeway to find how much they charge. Since Safeway and City Market and other supermarkets are similar it would be reasonable to assume that their prices will be similar (excluding sale items or promotions). Therefore, I get a basket of goods at Safeway and the same items at Whole Foods. Compare my prices and now I know what to look out for at Whole Foods: my “luxury” onions.