We’ve all seen it before. At the hot spot in any tourist location, there are dozens of little stores offering t-shirts, jewelry, and other trinkets. And somehow or another, no matter what time of year you go, things always seem to be on sale. And not that 10% off you see at stores at home, but a whopping 50% or 70% off, prices so low that they are often even called the lowest price ever.
Juneau, Alaska, is one such tourist destination because the large numbers of cruises (and the even larger number of cruise ship passengers) that stop in the city, and it too has its share of discount retailers catering to tourists. However, other store owners have begun complaining about this practice of constant sales and believe that “the price discounts were just a reduction from artificially marked up prices.”
This practice, often called “deceptive pricing,” is illegal in Alaska, which requires seasonal sellers (like the stores at issue in Juneau) to only advertise their merchandise as being on sale for half of the season. The state has yet to take any action, but has indicated that it would look into the issue if it began receiving a pattern of complaints. The owners of the discount stores defend the practice by pointing out how competitive the market for things like jewelry is and that advertising large sales is necessary to attract customers because most stores are doing the same thing.
However, when discussing this issue, one must consider whether this type of pricing is actually a bad thing. Several years ago, Robert, Randy, and Amy wrote an article arguing that states should abandon enforcing these types of laws because of several severe problems. This would put the states in line with the FTC that, though still having guidelines restricting the practice, has seemingly abandoned enforcement, with the last case being brought in 1979.
The authors explained that there were practical difficulties in enforcing these laws because, in many cases, a business will operate in more than one state. This is a major problem because laws here vary greatly from state to state, meaning that a business will either have to increase its advertising costs by pricing differently for each state or price at the least common denominator, which will deny consumers better discounts in states with less-restrictive or no pricing regulations. Also, many of these laws are routinely ignored, which brings up problems with selective enforcement and selective compliance.
The authors also argued that there are policy problems with enforcing deceptive pricing laws. First, enforcement may lead to a chilling of aggressive price discounting that would end up driving prices up and hurting consumers. Also, some states, like Alaska, require a product be at the non-sale price for a given number of weeks, which will both hurt the consumers in town during the non-sale weeks and will also give competitors greater certainty in knowing what their rivals’ prices will be, allowing them to adjust their own prices accordingly. Other states go one step further and require that a substantial amount of a product be sold at the non-sale price, a practice that in effect requires the retailer to “persuade some consumers to purchase the product at a higher price so that it can offer the product at a lower price to other consumers.” Additionally, regardless of the advertised sale discount, consumers still can compare actual prices, a practice made even easier with the rise of the internet.
It appears that many of these concerns are present here. First, there is a chance that the laws are routinely ignored, since the practice is common in Juneau and, as an owner of a store that does not advertise gigantic sales put it, “[The state’s] got bigger fish to fry.” Accordingly, it appears that businesses either comply and possibly lose money or run the unpredictable risk of state enforcement. Next, the excessive discounting in this market keeps prices low because of the intense competition and because enforcement might raise the price. The fact that it is competitors and not customers who are pursuing these claims makes this possibility even stronger. Also, the current Alaska law, if enforced, harms the people who visit Juneau during the half of the season where a store is unable to offer a product on sale because that is likely the only time they will be in Juneau, leaving them with the choice of either buying silver moose earrings at the higher price or not buying them at all. Moreover, though the internet does not really play a role here, customers are able to compare the products based on how much they are being sold for in competing stores.
Finally, though not explicit in the article, one wonders how “deceptive” these pricing schemes actually are. There is a strong possibility that modern consumers have become so accustomed to these permanent sales to understand that they are little more than a gimmick and are not really once in a lifetime discounts. As one Juneau customer put it, “You know, you go to Mexico and it’s the same thing . . . It’s worldwide, everyone wants a bargain.” Perhaps more correctly, we like to think we’re getting one, even when we know we are not.
