Regulating Drip Pricing
52 Pages Posted: 9 Mar 2019 Last revised: 10 Mar 2020
Date Written: February 18, 2019
“Drip pricing” occurs where the seller first appears to describe the full price of an offering, however after the transaction has commenced, the buyer discovers that the seller requires a second payment. Upon confronting the later required payment, the cost of unwinding the entirety of the transaction coupled with search costs can lead rational buyers to follow through with the drip pricing transaction, paying more than they initially anticipated. Attainment of the expected initial offer, as presented with the expected price (the base price) during the initial search, proves unwieldy and impractical.
The Federal Trade Commission (FTC) has recognized that such tactics, appearing in settings like the hospitality industry, can hurt consumers. However, the regulatory approach toward drip pricing has not been unified, clearly defined, or consistently expressed. Sorting out the more damaging patterns of drip pricing—the patterns worthy of most scrutiny—presents an enforcement challenge. How should regulators identify and prioritize which deceptive drip pricing practices warrant enforcement as deceptive?
I propose that regulators should prioritize drip pricing enforcement where a certain confluence of practices emerges. If the tactic already brushes against preexisting, but seldom-enforced unlawful practices, and also leverages the cost of leaving a “physical” or “virtual” destination to continue searching, considerable regulatory oversight should be applied. Concerns about drip pricing should also be raised where the consumer receives nothing of value in return for the secondary drip. Identifying these areas of confluence will point the way toward enforcement priorities. Further, the FTC could consider incorporating the Canadian and Australian approaches, which focus on whether the consumer can attain the offering as initially presented or avoid paying the secondary charge.
Suggested Citation: Suggested Citation