Libertarian’s Corner: In Pursuit of Deals and Better Deals

 

Joseph S. Fulda

Joseph Fulda is a freelance writer living in New York City. He is the author of Eight Steps Towards Libertarianism.

My bank’s Platinum VISA Card offered no cash back whereas several alternative cards that I also have do. So I called up my bank seeking to cancel the card without cash back rewards. Naturally, I was asked why. I explained that although there was nothing wrong with the card I could get a better deal from several other banks. The representative eagerly told me not to cancel my card, but rather to convert it to a Double Platinum VISA card, which offers 1 percent back on the first $1,500 of purchases per year and .5 percent for the next $1,500 in purchases. Of course I was happy to do so. After all, since one may charge more than $1,500 a year on credit cards, it is best to have several of these.

I told my friend who also had a Platinum VISA Card from that bank of my experience and his first reaction was simply “Scandalous!” “Why,” he asked, “should this better deal be made available to you and not to me, and why should it have been made available to you only when you sought to close the account?” “Why,” he went on,

. . . do they hide their best deals from good customers like you and me until we force it out of them with a threat to close our accounts? Isn’t this behavior scandalous, at worst unethical, at best unsavory?

Here is how I replied to the challenge. I pointed out that my friend was not thinking about the issue from the bank’s perspective, in a number of critical ways. Disseminating information about this better deal through a special mailing costs money, and even notifying customers with platinum cards of the better deal on their monthly statements involves the cost of paying someone to write the material and determine how to disseminate it. But beyond that, every single customer who changes to Double Platinum gets a new card with a new number, and that is expensive. Moreover, if everyone were informed automatically, the bank probably wouldn’t be able to offer anything like 1 percent on their Double Platinum card. Yet they must be able to offer 1 percent if they are to match the competition—and stay in business. Moreover, I said, he hadn’t even considered how this program—this better deal—came to be. Have you ever heard of a Double Platinum card before? I haven’t. My best guess is that this better option was made available under the pressures of competition, for fear of losing customers to other banks. The bank finds out that they may potentially lose you when you call to close your account, and, naturally, that is when they make a counteroffer. Those satisfied with the standard deal the bank offers, those who are either not looking for a better deal or whose credit history does not allow them to obtain one somewhere else, will not be offered a better deal. The result of this sensible discrimination between thrifty, credit-worthy customers and those who may be neither is that the better deal the bank can offer its best customers, those who charge a great deal on their cards, pay on time, and are most unlikely to default is, indeed, the best deal the bank can possibly muster.

What my interlocutor seemed not to realize is that giving everyone the best deal would give everyone a lesser deal, and that better deals are offered when competition compels their offer, and alternative, lesser deals would be rejected. My interlocutor has of course gone into a store and found a bargain from time to time. That is, he has on occasion found merchandise at a price below that which he would pay were it required of him. Yet never in his life did my friend ever bid up the prices while shopping, yet curiously he expected the bank to do just that with its VISA card. Why, I wonder?

I think my friend simply does not understand that a merchant counts on only a fraction of his eligible customers seeking the best possible deal, and that thereby he is able to sweeten that deal for those who do seek it--indeed, demand it--on pain of taking their business elsewhere. Thus, my friend has never understood why one should have to mail in a rebate for a product, rather than have it discounted right away, or why one should have to flash a membership card’s bar code by a scanner to obtain a discount. Of course, the sole purpose of the added effort is to discourage those who do not care enough to make that effort from taking advantage of the discount or rebate, thereby ensuring that a significant fraction of those purchasing it will pay the full price. My friend would say “Scandalous!” I say pish-posh: Those whose revealed preferences show that they want the discount will get it, while the rest of the customers who do not make the effort needed to get the discount make a steeper discount possible to those who really seek it.

To go back to the VISA card, one dimension of effort in bringing about a better deal for one’s self is the effort necessary to discover the very existence of a better deal. Those whose alternatives and financial situations push them to this discovery will generally get the best deals available, while those with fewer or less attractive alternatives or, on the other hand, less exigent financial circumstances will probably never discover their existence. These opportunities are not being hidden from them, scandalously or otherwise; they are simply not among the customers at whom these deals are targeted. In the free market not everyone makes or accepts the same offers, because each man’s circumstances and preferences are unique. Financial circumstances that compel one to carefully seek out the very best deals and time-vs.-money preferences that make it worthwhile are among the many other market conditions that determine who offers what to whom and on what terms. This is no scandal, but simple, capitalist deal making.     *

“The state is the great fiction by which everybody seeks to live at the expense of everybody else.” –Frederic Bastiat