Have you ever been to a dry cleaner whose racks were not nearly full?
Those things are neat – imagine having a huge walk-in closet with all of your clothes hung on a conveyor system. Anyway, I don’t think that I have ever been into a dry cleaner where those racks were 1/2 full, or even 3/4 full. Virtually every time I go, the racks are overflowing with garments. They are sometimes so full that finding garments is difficult, despite the fact that they are hung according to ticket numbers.
This equilibrium must be efficient from the perspective of the dry cleaner, but for the life of me I cannot imagine why. Why do I say that? Because some people (for example, me) are notoriously delinquent about picking up their dry cleaning. When my shirts are done on a Monday, I might not be there until Wednesday, Saturday, or even weeks later. All the while my shirts take up space on the conveyor system. What is puzzling is that I am charged $1.75 per shirt regardless of whether I pick the shirts up on the appointed day, or whether I leave them there for a few weeks.
A second puzzle, given the cost structure of a dry cleaner (at least to my eye) is that the dry cleaner charges different prices for different types of garments (e.g. mens shirts and women’s shirts cost a different amount; pants cost more than shirts, etc) probably based on costs, but does not charge according to how long items need to be stored at the cleaner. The point being, the dry cleaner is not averse to charging customers different prices based on different services being rendered, but yet does not distinguish the time dimension of their costs.
I am sure they have very good reasons for this policy. And I am sure that the current policy is profit maximizing. How do I know? Because I don’t know of a dry cleaner that behaves otherwise, and that is putting other competitors at a disadvantage. If pricing items more for the time they are in inventory is a smart idea, then someone would have tried it and out-competed everyone else. But I don’t see it happening.
So, what’s a reasonable explanation for this policy? We’ll explore this a little deeper in the future, particularly as explanations come in to me.