Jul 28, 2019

The appeal of price opacity

Illustration: Aïda Amer/Axios

DoorDash dominated more of the news cycle than it should have this week, after an NYT article brought broad awareness to its idiosyncratic policy on tips. The company would give its "dashers" a guaranteed minimum fee for delivering food; that minimum included any tips. The result was that most tips ended up going to DoorDash rather than to the delivery workers.

Driving the news: After defending the policy as recently as last month, DoorDash CEO Tony Xu backtracked on Tuesday, tweeting, "Going forward, we’re changing our model - the new model will ensure that Dashers’ earnings will increase by the exact amount a customer tips on every order."

The big picture: Americans encounter disaggregated prices every day. Retailers operate under a convention that prices exclude sales tax, so it's never entirely clear how much something is going to cost in total.

  • The implicit convention is that disaggregated prices reflect real-world allocations. Sales taxes go to the government; tips go to servers. The DoorDash backlash came because it violated that convention and effectively kept customers' tips for itself.
  • Ticketmaster catches flack for similar reasons. The various fees it tacks on seem fake, designed primarily to hide just how much tickets really cost.
  • Buying a car from a dealership is an experience fraught with countless fees and taxes, all of which inflate the total cost of the vehicle far above its headline price.
  • Airlines and hotels are also expert at luring in customers with low advertised prices, only to surprise them with a raft of unexpected fees.
  • Banks make billions of dollars in fees; some, like Aspiration, even set their stated price at zero and make the bulk of their revenue from “tips.” Lender Earnin does the same.
  • Even auction houses selling multimillion-dollar artworks play this game, artificially breaking the final price into a "hammer price" and a "buyer's premium." Buyers bid on the hammer price and can then find themselves on the hook for millions of dollars extra.

Why it matters: Budgeting and spending decisions become much more difficult when all-in prices are mostly invisible. Retailers who disaggregate their prices end up selling more, even as their customers trust them less.

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DoorDash's new policy will treat tips as tips

Photo: Smith Collection/Gado/Getty Images

DoorDash is finally beginning to roll out a new pay model for its delivery drivers that will treat customer tips as additional earnings, after announcing nearly a month ago that it will shift its policy.

Flashback: DoorDash's two-year-old pay model, a twist on the "tipped wages" model familiar to many service workers like waiters, came under fire last month. Critics said its approach was deceptive to customers.

Go deeperArrowAug 22, 2019

More hidden fees may be on the way from Trump's China trade war

Illustration: Sarah Grillo/Axios

The U.S.-China trade war looks set to continue and likely escalate, bringing more tariffs to imports of Chinese goods, with the latest round adding a 10% charge to consumer products like clothing, toys and electronics.

Between the lines: Large retailers like Walmart and Target have said they will have no choice but to pass the cost of tariffs on to customers, but it's very likely the cost of the tariffs and many other increased charges won't be fully disclosed on price tags.

Go deeperArrowAug 12, 2019

Public school fees are soaring in America

Photo: Peter Dazeley/Getty Images

The cost of a public education is increasing annually as some schools flood students and parents with fees to cover everything from alert systems and textbooks to anatomy class cadavers, reports the Wall Street Journal.

The big picture: "The cost of a free public education is on the rise, as a growing number of districts across the U.S. are charging students for registration, textbooks, the use of libraries and more," the WSJ reports.

Go deeperArrowAug 24, 2019