Friday, July 26, 2013

Why do campus stores price higher than the vending machines?

File this one under "economics of trivium..."

Noticed this today: At the GMU mini-food-store, you can get pretty much all the same stuff as you'd find in the vending machine across the hall. However, they're all a bit more expensive. Dasani water for $1.59 instead of $1.50; Candy bars for $1.29 instead of $1.25. What's going on here?

If students are economic agents we'd expect them to go with the cheaper option, especially when it's only about 100 feet away. So how does the store get away with marginally higher prices? Put another way, why doesn't the student store undercut the vending machine prices, and take all their business?

I can think of a few possible reasons.

1. A convenience charge. The store has better variety than the vending machine, and it's more convenient to buy all your snacks at once. If I show up for chips that the machine doesn't have, maybe I unthinkingly grab a candy bar too, and the store can profit from my laziness (or put more charitably, can capture some of my savings in search costs).

2. The vending machine and the store are run by the same people, so they're indifferent which one I buy my snacks from. So why not have the price of one be a little higher, to extract a bit more consumer surplus? However, if this were true, I'd expect store prices to be much higher, rather than just a little bit. Maybe the goal is to avoid perceptions of unfairness by keeping price differences trivial.

3. Covering fixed costs. The campus store has to pay a cashier, while a vending machine just sits there and is restocked occasionally.

4. Positive value placed on human interaction. The cashiers are always pleasant. Maybe some (lonely) students appreciate that bit of social contact, so they put up with slightly higher prices than the totally impersonal vending machine.

Anything else I might have left out?