Taken to the Cleaners?
My dry cleaner charges $1.65
to clean and press a man's shirt and $5.25 for a woman's blouse. What's going
on here?
The laws
of arithmetic allow only two possibilities. Women's clothing must be associated
either with higher costs or with higher profit margins for the dry cleaner.
Unfortunately, neither theory seems terribly plausible.
Let's start with the "higher cost" theory. In its most
naive form, this theory predicts that if I move the buttons on my dress shirts
from the right side to the left, the cost of laundering them will more than
triple. That one's not going to fly. So, to give the theory a fair chance, we
have to look for more significant differences between men's and women's
clothing.
Well, like what? You could
argue that women's clothing is typically made of more delicate fabrics than
men's. But if that's the relevant factor, why don't dry cleaners just quote
different prices for different fabrics? (For some materials, such as silk, they
typically do quote separate prices. The question is why this practice
does not completely displace that of distinguishing between men's clothes and
women's.)
An
alternative version of the theory is that women's clothes are costlier to
process because women demand higher quality work. I can't disprove that
version, but I have no real evidence to support it, either. So, in a search for
better alternatives, I called three different dry cleaners and asked for
their explanations. The first said that men's shirts are machine
pressed, while women's are hand pressed. That left me wondering why they don't
simply quote different prices for different kinds of pressing. The second said
that women's shirts require specialized treatment because they are typically
doused with perfume. That left me wondering why men who use after-shave are not
chronically dissatisfied with their dry cleaners. The third said that this was
their pricing policy, and if I didn't like it, I was free to shop
elsewhere.
In the absence of a clear, convincing story
about gender-specific costs, let's see what kind of story we can tell about
gender-specific profit margins. In other words, let's ask whether my dry
cleaner is exploiting female customers through higher markups.
To make
sense of that theory, you have to ask why dry cleaners would want to
discriminate specifically against women, as opposed to, say, men. That strategy
makes sense only if men are more price-sensitive than women and hence more
likely to walk away in the face of a high markup. But why should men be more
price-sensitive? You could argue that men are less diligent about cleanliness
and so more likely to respond to high prices by wearing unlaundered shirts. But
as long as we're dealing in stereotypes, you could argue equally well that
women are more willing to do their own laundry--in which case women
would be more likely to walk away from a high price, and it would make more
sense to discriminate against men.
So it isn't clear which gender is the more natural
candidate for getting soaked at the cleaners. But there's a more fundamental
reason to doubt that either gender can be victimized by price
discrimination, and here it is: There are over half a dozen dry cleaners within
easy walking distance of my house. If they're all earning higher profits on
women's blouses than on men's shirts, why hasn't any of them decided to
specialize in women's blouses?
Let me
make that more concrete. Suppose the going prices are $1.65 for a man's shirt
and $5.25 for a woman's blouse, even though (under the theory we're currently
entertaining) they are equally expensive for the cleaner to handle. Then if I
were a dry cleaner, I would announce a uniform price of $5 for all shirts and
blouses--thereby attracting all the women's business and none of the men's.
Because nobody has adopted that obvious strategy, we should suspect that
despite appearances, the profit margin on women's clothing can't be much higher
than on men's.
In fact, the process wouldn't stop there. As
soon as I announced a uniform price of $5, my neighbor would announce a price
of $4.75. Ongoing competition for the (temporarily) more lucrative women's
business would quickly eliminate any profit differential.
That
argument rests on the fact that dry cleaners are highly competitive. If
Microsoft ran the entire dry cleaning industry, it might very well choose to
discriminate against women (or men, depending on market conditions). But in the
world we live in--or at least in the neighborhood I live in--there are
so many interchangeable dry cleaners that none of them should be able to get
away with exploiting anyone.
One of my colleagues' wives insists I've got this
wrong--she says she's so loyal to her own dry cleaner that no discounter can
lure away her business. If most customers are as devoted as she is, then each
dry cleaner is like a mini-Microsoft, with its own captive customer base. In
that case, price discrimination can survive. But I am instinctively skeptical
that many customers are as fanatically loyal as my colleague's wife.
The theory
that only a monopolist can price discriminate is standard textbook fare, and
it's borne out by a lot of observations. Movie theaters have a certain amount
of monopoly power (on a given night, a given moviegoer is likely to have a
strong preference for a particular movie at a particular theater), and they
price discriminate by offering discounts to senior citizens (which is
equivalent to discriminating against everybody under the age of 65).
Airlines have even more monopoly power--once you know where and when you want
to fly, you are likely to have an extremely limited choice of airlines--and
they heavily discriminate against business travelers by charging more for
midweek flights than for weekend flights (when most travel is for leisure).
By contrast, in the most competitive
industries, there is no price discrimination. As I am fond of pointing out to
my students, you've never heard of a wheat farmer who offers senior citizen
discounts. Likewise for gas stations, which are ubiquitous and sell to everyone
at a single price.
Well, at
least that's what I used to tell my students. But I might have to make a
small change in my lesson plan. The gas station nearest our campus has just
announced a policy of senior citizen discounts on Wednesday afternoons. Is this
price discrimination in favor of seniors, or does it reflect a genuinely lower
cost of serving them?
If you push me hard enough, I can probably concoct some
kind of story about lower costs. Maybe seniors tend to drive cars with bigger
gas tanks, so they buy 20 gallons at a time instead of 10, thereby saving on
the cost of processing credit cards. (A significant part of that cost is the
time spent waiting for the card to be approved, during which the pump is
unavailable.) But if this cost saving is significant, why has only one local
gas station recognized it? And why is it significant only on Wednesdays?
I have suggested to my
colleagues that none of us should be permitted to present ourselves to the
world as economists until we figure out what this gas station is up to. Nobody
has risen to the challenge. A few have suggested that perhaps the gas station
owner is just a little quirky. Maybe that's right. But it would be far harder
to believe that the entire dry cleaning industry is just a little quirky.
Either there is enough monopoly power to sustain price discrimination, or there
is some reason why women's clothes are incredibly expensive to clean and press.
But I have no idea which.
