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When I discuss the various methods of rationing goods in class, we learn that non-price methods of getting goods to consumers suffer from three major difficulties (each is really tied into a transactions cost and scarcity problem). These are that:

  1. Whether the competition that arises over the rationing mechanism is destructive or constructive.
  2. The incentives to supply more of the good that arise from the rationing mechanism
  3. The freedom for consumers to economize in ways that they see fit

Other possible considerations include asking (they are corollaries really): Is there a way for those who desire the good the most to get it?  How are the chances of the “poor” to secure the goods as compared to other mechanisms? I’ve addressed each of these in numerous posts, so will not reprise them here. Briefly, waiting in line is not great on condition 1, because all of the resources expended to wait in line are lost to society (e.g. you could have been studying, producing some other good, spending time with a loved one, etc). And if you do not secure the good after waiting in line, you are poorer, and have nothing to show for it. Queuing fails on #2 as well. Suppliers have little incentive to produce more of the good in response to lines forming. If people “pay” higher prices by waiting in lines, then producers cannot capture this and therefore have no incentive to increase output. Compare that to a situation where people who want a product more will bid more for it. Since it costs more to make more, and firms like to make profits, if customers are willing to pay more for a product, new supplies will surely be forthcoming (and long term prices would ironically fall).  On the third point – forcing a queue is like telling people how they have to respond to the increased scarcity of a good. Think of rising gas prices. If we allow prices to rise and people’s willingness to pay be the rati0ning device, then some people may reduce gas consumption by carpooling on a few days, others may still drive their Humvee while mowing their grass less frequently, and so on. Others may still value gas in all uses and still prefer to pay the higher prices for it. But if we simply say that the money price cannot rise, then all people are forced to sit in a gas line in order to get the gas, some will have to go without it, even though they would have been willing to pay a great deal for it, and so on.

So what about supermarket checkout lines? It is obvious that supermarkets could increase profits, and society would waste fewer resources if supermarkets differentially priced different check-out lanes (just as universities should differentially price different class times and spaces, but often refuse to do so). For example, a few lanes would charge $10 for the right to use it, some $5, others $2, others $1 and then the remaining lanes would be “free.” The prices would adjust so that people would not have to wait on lines at any of the paid checkouts and that the “free” lines moved at least as quickly as they do today (they’d move a lot quicker). It’s amazing (or is it?) that few if any supermarkets have experimented with this directly. It would increase their profits (and encourage them to have additional staff on hand to man the extra checkouts), it would reduce the time wasted in line for everyone, it would still permit people to pay “nothing” for a regular line, and it enables those in a rush, or who hate lines, or who otherwise find something undesirable about waiting in line (such as wrestling their two small children off of the candy racks and People magazine stands) to pay a price for something they clearly get value from. In fact, this seems to be as close to a Pareto improvement as we can see in the world, and it is rather astonishing that this kind of cash is left on the table in such a systematic way. Some places seem to have taken second best approaches to this problem – by having a helper identify which lanes are open, by allowing self-checkout or by instituting “10 item or less”-type lanes.

I understand that supermarkets believe consumers would have strong resentment if they priced lanes. But it is not clear to me why such resentment would come about or if supermarkets should worry at all about it. After all, some highways have instituted “E-Z Pass toll lanes” that allow consumers to “jump the line” and I don’t see any outrage at that. In fact, what is striking is that the “E-Z Pass” toll lane users pay LESS for some tolls than do cash pay users. Yet still people do not get up in arms about the injustice of some people getting to move through highway toll lines at different rates. Same thing for HOV lanes. So why do (would?) people behave so differently when it comes to supermarket check-out lines?  I’ll leave that question unanswered. All I would recognize is that these “10 items or less” lanes already don’t seem to cause consternation even though its the number of customers in line that takes up the most (marginal) time and not the number of items each customer has. For example, it takes far more time to check out 4 customers each with 8 items than it does to check out one customer with 32 items.

If supermarkets charged higher overall grocery prices, the “problem” could be solved. Or they could perhaps play behavioral games and rather than marketing this idea as a “pay to get in the fast lane” they could offer discounts to customers who were willing to use certain lanes. Has anyone seen this? I leave lots of the analysis out of this since the post is already too long. We’ll come back to the supermarket in the future, I promise.

16 Responses to “Checking Out the Checkout Lines”

  1. Speedmaster says:

    D@mn, I really wish I had you as a teacher when I was an undergrad. With a few exceptions we just ran through Keynesian rants over and over again.

    But as you’re a few years younger than me, I guess that wasn’t likely to happen. 😉

  2. jb says:

    You say “If people “pay” higher prices by waiting in lines, then producers cannot capture this and therefore have no incentive to increase output.” But supermarkets generate additional revenues by selling candy, newspapers, even soda, in the checkout area while you wait, and typically high margin items I believe. Perhaps this might partly explain why we don’t see the pricing options (fees for faster checkout for those willing to pay) that you describe.

    Nowhere is this quandry more apparent than at Disney World. Everybody pays a flat fee for entrance, only to stand in line for what seems an eternity for the most popular rides (and in this case Disney does not seem to extract any additional sales while we stand there telling junior to “just be patient…”) Why not let everyone in for free and have a “swipe card” with credits for rides that you can purchase, and simply charge more for the most popular rides?

  3. ckr says:

    I recall one very pleasant day with the family at Universal Studios in Los Angeles. We purchased a ‘front of the line’ pass – the cost was exactly double that of an ordinary park entry pass. And we had our own entrance that literally brought us to the front of the line for every ride. I recall noticing a few disgruntled looks from those who endured long waits in sweltering heat, but we got past them so quickly, I hardly had time to notice:

    .

  4. ckr says:

    And what about those Washington Beltway HOT lanes (pejoratively called “Lexus Lanes”), now under construction? They represent a creative (or ‘evil’?) attempt to introduce market principles to traffic. Apparently, they are quite controversial. I’ll let the folks at CABE (that’s Citizens Against Beltway Expansion) explain how it works:

    <>

    I know they are against it, but they are doing a very good job of convincing me of the merits.

  5. ckr says:

    Sorry, it got cut off. Here’s how they explained it:

    “When the highway becomes congested, the toll is increased to an amount so high that most drivers cannot afford it or are unwilling to pay. Traffic keeps moving on the toll lanes because they are used only by those whose wealth allows them to ignore exorbitant tolls . . . and those forced to spend beyond their means to get to work on time.”

  6. ckr says:

    OK, one more; I think this relates; even if it doesn’t, it’s fun. The Wiseguy Tickets Inc., smart computer ticket arbitrageurs, buying low and selling (legal products in this case, online event tickets) high. Apparently, promoters don’t know how to price their own events and the Wiseguys understood the market better. Well, I guess the Wiseguys were pretty good at it and that must be why they ran afoul of the feds.

    http://www.washingtonpost.com/wp-dyn/content/article/2010/04/08/AR2010040805594_pf.html

    We learn, for instance, that the Wiseguys prevented Hanna Montana’s “true fans” from purchasing tickets and quite unfairly, only those who were “willing to pay the market price” were able to see the show.

    As a post script, we learn that the Wiseguys did plead guilty to something or other and no doubt learned their lesson, which is . . . . umm . . . ?????

    http://www.nj.com/news/index.ssf/2010/11/wiseguy_tickets_operators_plea.html

  7. Harry says:

    Our company (the operating specialist company I worked for) did a project for a New York bank. I did not run the project, but was lucky to work on it.

    Our task was to make it a “no-wait” bank, while also finding savings, otherwise known as a reduction in cost, which fundamentally meant a reduction in the number of tellers, Vice Presidents sitting on the Platform, and so forth. This was 1982, when many banks held 30-year mortgages at 5% and had to pay voracious depositors in Parkchester 10% for their jumbo CD’s.

    I mention Parkchester because I was there on an early Monday morning at 8AM, as were some bank employees inside and some customers outside, waiting for the bank to open at 8:30. You can guess the rest of that job story.

    We also found that at the branch at 49th and Lex had a big problem with lines at noon, which happened to coincide with a customary lunch break for several tellers, who played cards. Someone else was manning the bond window, in case someone would come by and clip a few coupons from their bearer bonds, and there were at least three Suits sitting at their desks on the Platform, not to mention other folks milling around behind the teller windows avoiding eye contact with anyone in line.

    I will not attempt to detail all of what we did, but we did get the people on the platform off to help prepare customers, we closed the bond window, and we sent everyone who was not helping a customer to the back. We rescheduled the card game/lunch break to 2pm.

    This was great fun, and proof of an axiom we were taught that every operation you walk into is screwed up.

    Three weeks ago, I stood in a line at Miami airport to rent a car to drive to Key Largo. We landed at 4:00, we drove out on Lejune at 5:45. Next time, I’m taking a cab to some car rental place away from the airport. But it helps to know when waiting in line too long is the result of the natural order, namely, it’s completely screwed up.

    By the way, even though you could have edited your piece, it’s good material for one of your business bestsellers

  8. jb says:

    CKR, great posts, #5 is unbelievale.

    “When the highway becomes congested, the toll is increased to an amount so high that most drivers cannot afford it or are unwilling to pay. Traffic keeps moving on the toll lanes because they are used only by those whose wealth allows them to ignore exorbitant tolls . . . and those forced to spend beyond their means to get to work on time.”

    This may be the quote of the year for 2010 economic ignoramus. What “spending beyond their means” MEANS is they will “have to” make a choice between getting to travel without traffic jams and something else, maybe dinner out or the new big screen TV. Why is it that only economists see the new fast-travel lane opportunity not as a choice that folks are “forced” to make, but as a NEW choice/opportunity they they did not have previously?

  9. jb says:

    To extend my last post…(this is bugging me now). Why is it that consumers, when confronted with a new set of choices that do not reduce choices they faced previously, seem to object to the new opportunity? In this case, even it you assume that “rich” people face an easier trade-off decision (a shakey assumption), so what? Less affluent drivers can still sit in traffic as they always did, or they can pay up and drive in the fast lane. No one is worse off and everyone has a new opportunity that may or may not make them better off.

  10. jb says:

    Perhaps this is the ultimate hypocrisy of the left, who like to decry “greed.” Perhaps true greed (envy, avarice) is the desire to limit the choices of others even when the outcome for those others will not diminish my well being one bit.

  11. harry says:

    Those lanes on the Beltway are HOV lanes, and they are free to anyone with one passenger. They were designed to promote carpooling, unlike the new GM cars which discourage car pooling.

    Only a small stretch off the Beltway, on the Dulles Access Road charges tolls, which surely influence how you drive home.

  12. Harry says:

    jb, you’re right. It is only a matter of time until Congress delegates supermarket operations to Kathleen Sibelius, a smart shopper.

  13. Harry says:

    I mean THIS congress. Maybe on Christmas Eve.

  14. ckr says:

    Harry — HOT (“High Occupancy Toll”) Lanes on the Beltway are a new concept, currently under construction. I believe they will be the first of their kind in the country.

    http://www.virginiahotlanes.com/

    The HOV lanes, of which you speak, are scattered around town on other roads, but not on the Beltway. I suppose they are intended to promote car pooling, but are also quite convenient when you have to drive your kids to soccer practice.

  15. Harry says:

    Ckr, I stand corrected.

    Whatever scheme they cook up, it will be equal in success to the Long Island Expressway or to all southern California roads.

    The Cancun diplomats want us to cut CO2 back to 1992 levels. How about cutting government payrolls back to 1992 levels? Which of the two would have the greater effect on the Beltway traffic problem?

    This is a rhetorical question, not intended to disparage any commentator on Wintercow’s blog

  16. Rod says:

    My favorite DC area highway is I-95 south of the new bridge across the Potomac. There are HOV lanes along that route, but the problem is they end before carrying the rush hour traffic to Fredericksburg and beyond. If you don’t get over the bridge before 3 p.m., it will take you about three hours to get to Fredericksburg.

    Another good reason to make really big cuts in government — the hydraulic pressure of all that tax money is contributing to traffic congestion there, for sure.

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