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$49 for a hotel room, promising “an experience like no other.” $59 for a ticket to a concert. A $39.99 per month cell phone plan.
Great prices on the surface – but are those really the prices? The hotel room, it turns out, comes with an unavoidable $32.99 resort fee, added on later, making it more like $82. The concert ticket, after a “service fee,” “processing fee,” and a “download delivery charge” really comes out to about $75. The cell phone plan, when the bill arrives, requires the payment of “mobile administration fees,” and “access fees,” along with a charge for monthly texts, that make it not such a great deal after all.
Accurate pricing is the backbone of an efficient and consumer-serving marketplace, and the key to a competitive economy. But in a number of consumer-facing sectors, the real prices of things are now being hidden or muddied by the addition of mandatory fees (or effectively mandatory fees). Quoted prices don’t reflect what things actually cost – the real prices are hidden by fees.
That is why, in today’s National Economic Council report on our Competition Initiative, we are including a brief on hidden fees, which details the growing trend and magnitude of such fees in the U.S. economy. Such fees now collectively account for billions of dollars among a range of industries including hotels, airlines, event ticketing, banking, telecommunications, education, and automotive. No longer merely a matter of annoyance, the massive revenue collected through hidden fees and their clouding effect on pricing have become a matter of broader economic concern.
When consumers are induced into paying more than they would otherwise by add-on fees, several consequences follow. First, there is a systematic transfer of wealth away from consumers to the firms that rely on the fees. Second, the economy itself, to the degree it relies on accurate prices to direct resources to their highest uses, becomes less efficient. And finally, the competitive process itself is dulled, as the true price-cutters have trouble beating out rivals when everyone is hiding their real prices.
With its brief on these hidden fees, the National Economic Council is also releasing a summary of the Administration’s Competitive Initiative. In April 2016, President Obama issued an Executive Order ("Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy") that directed Federal departments and agencies to use the tools available to promote a fair, efficient, and competitive marketplace for American workers, businesses, entrepreneurs, and consumers. Since that time, among other actions we detail in the report, the Department of Transportation (DOT) took steps to promote fair and transparent competition in the airline industry; the Department of Justice (DOJ) and Federal Trade Commission (FTC) took action to combat wage collusion; the Administration called on policymakers to take action to address the overuse of non-compete agreements; the United States Department of Agriculture (USDA) released new rules to protect farmers from unfair treatment; the Food and Drug Administration (FDA) took action to facilitate access to affordable hearing aids; and the FTC proposed new rules to promote competition in contact lenses.
While the Administration has made meaningful progress in spurring competition for consumers, workers, and entrepreneurs, there is more work to be done to push back against long-term trends hindering economic competition. Today’s report exposing the hidden fees that exist across our economy provides a roadmap for policymakers, companies, advocates, and the research community to build on our efforts to date and continue to promote competition throughout our economy.