Why We Pay What We Do

Friday, January 07, 2011

Eduardo Porter uncovers the true story behind the prices we pay and why things cost what they do. The Price of Everything: Solving the Mystery of Why We Pay What We Do looks at global economics and the constant—and often unconscious—cost and value assessments we all make every day.


Eduardo Porter

Comments [13]


The more expensive wine is probably rarer. Starbucks is a lot of things - fair trade etc. but I don't think it's better!

Jan. 07 2011 04:06 PM
Peter Talbot from Harrison, NJ

Great radio!
Cost (what is charged, or how goods and services' sticker prices are established) is a more or less totally separate issue from why we pay what we pay.

The myth propagated (and sometimes believed) by all vendors is that price reflects cost of creation and delivery plus a "reasonable" profit. Another myth usually believed by the consumer is that price is completely a function of demand, and has no relationship to the offered product or service. The actual truth at any given moment in the offering of a product or service is that price fluctuates on a synthetic continuum between the two, and is not a constant function.
Western markets like malls (fixed prices or discounted tags, no dickergin) because they lend credence to the first of these myths: that there is a cost-plus relationship to price. The proliferation of "super" markets is testament to the power of the suppliers over buyers in the West to set the terms of an exchange. One look at the commodities markets or overseas open air markets will prove instantly that this is not a necessary or even "normal" practice. Where demand rules markets, prices are not fixed and dickering prevails. In the USA the consumer of nearly all retail products and services has no practical ability to affect price, and so only has the fixed price "mall" model of exchange at hand.

Why we pay what we pay, however, is separate from the way prices are established. When demand rules the exchange at point of sale, the consumer is rewarded for dickering and punished for moving too quickly to sale. Doesn't matter how rich the consumer is: this is a function of the specific societal expectations. When supply rules the exchange, the consumer believes that they are powerless to secure value for money. The consumer can either shop competitively out of necessity (i.e.: poor or disadvantaged by language) or treat the exchange with diffidence: essentially saying: I know you are a clerk charging a random and exorbitant markup, but I will deign to give you what you ask because my time is too valuable and I am too superior/rich/civilized to dicker over price.
The silliest result of which is the US consumers that feel that they should be treated with familiarity or courtesy by the clerk as the fealty (!) they are due as nobility, despite that the actual suppliers are achieving an insupportable 200-1000% markup of merchandise. And the peon clerks are trained by their entrepreneur employers to grovel accordingly!

A trip to any Chinatown fishmarket or Goodwill thrift store will provide you with instant examples of all these strategies in one location at one time, sometimes by the same people.

Jan. 07 2011 02:03 PM
Michelle Morales from Nyack NY

Just yesterday I did the opposite; I paid more for lemons that were lose to avoid taking yet another plastic bag into my life.

Jan. 07 2011 12:38 PM
Amy from Manhattan

Women do far more than just bear & raise children in "traditional" societies. They raise crops, herd livestock, wash clothes, cook food, & (probably most crucial) carry water, often over long distances. This work should not be ignored.

Jan. 07 2011 12:36 PM
Orla from Manhattan

Starbucks coffee is better. That point is overlooked by those who rail against what they see as a symbol of corporate colonization. Take this from a coffee connoisseur who once owned six different styles of coffee makers at the same time.

Jan. 07 2011 12:25 PM
Ruth from washington heights

Maybe the rich can't bear to admit they are unhappy!

I will walk a long way to get a GOOD cup of coffee. Thankfully, there are many good coffee shops nowadays.

Jan. 07 2011 12:23 PM
S Block from NYC

This analysis is a little obsessed with the psychic benefit that people receive lording their wealth over other people. While I believe that plays a role, you are leaving out the other half of what's going on.

$1 million to a billionaire does not feel like much money. So, it isn't always about taking something away from other people, but simply "I'd like to have this, and buying it would not be painful"

All people seem to like things such as "low number license places". Yes, rich people can afford them in an auction, but the high price reflects their universal appeal, not anything about rich people.

Brain scans do provide unbiased measures of what appeals to whom and why.

Jan. 07 2011 12:23 PM
Amy from Manhattan

On the $2.50 pill vs. the $.10 pill: those were placebos, but what about actual drugs? What if I buy a generic pain reliever specifically *because* it costs less? Am I likely to get less relief from it, or does actively making that choice influence the effect in the other direction?

Jan. 07 2011 12:23 PM
Kevin from Cobble hill

Leonard, can you ask about college tuition?

Jan. 07 2011 12:20 PM
Phil from Park Slope

People connect the value of something to the price. There used to be a bar near NYU that had--literally--"free beer" and 25 cent wings during certain hours. People would see the sign and walk away quickly, assuming there must have been something seriously wrong with the place. It was always the best to go: free beer, 25 cent wings, and no crowd!

Jan. 07 2011 12:20 PM
Gus Blumberg from Westchester County

NO Tell your guest that by looking at 2 HH income average in 2 counties does NOT equate to happiness!

Jan. 07 2011 12:15 PM
Mary from NYC

Money doesn't guarantee happiness, but it does give you options.

Jan. 07 2011 12:09 PM

Can you touch on real estate? The only reason i can imagine someone would overpay for a house on a busy intersection, or in a high crime area, is that they are betting it boosts their own home resale value and maybe improves the stock of future neighbors. I can't understand what keeps house prices up, given the excess stock now.

Jan. 07 2011 12:05 PM

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