Eye2theLongRun

The NZ Grocery Commissioner has had a guess at the level of overcharging in NZ supermarkets and come up with two notions of interest:

1. the number is likely to be in the “tens of millions of dollars”; and, more dangerously than this idle speculation,
2. the idea that overcharged customers should get the entire purchase “free”.

Apart from the fact that Commissioners bear no risk (other than to their reputation) in adopting these god like postures (and their “reckons” should be discounted accordingly), a more interesting point is that if we apply his logic to undercharging – and it seems that the type of errors which sometimes lead to overcharging equally arise with resultant undercharging – with some 18,000 items in a typical supermarket this seems likely – then customers would presumably be charged double the original item’s price if we apply the Commissioner’s logic. He may have some argument of the “they can afford it” variety – but even seen in a kindly light that’s an equity argument of some sort.

Even anecdotal tales do not reveal large numbers of customers reporting under charging let alone offering to make up any shortfall or more. This is surely what we would expect. Why?

1. rational self interest without the morals suggests customers should be charged correctly and compensated for any amount overcharged. That is apparently common – certainly that is my experience
2. supermarket operators do not, however seem to pursue or harass or even try to find customers who benefit from errors of under pricing (theft is a different animal). Why is it that rational and what does it tell us.

Given that both shop owners and customers are likely to be equally self-interested one conclusion is that they are operating on rather different time scales. Over the long run the shop owner likely has little to gain and a deal of goodwill to lose in trying to recover underpricing error losses. For the customer there is short term gain to reporting over charging (though making a federal case of it on a serial basis may lead to longer term costs).

Both parties then may well be operating rationally. What’s “fair” and what’s “unfair” depends a bit on the time scale being considered. The overall outcome certainly seems to be rational over the bucket of different time frames we all operate in.

It is more difficult to see much logic in wild guesses and back of the envelope compensation schemes applied inconsistently – the incentives for that sort of approach involve a quite different story.