• Earlier in March, US President Joe Biden shared a post on social media and said that his administration is working to end the practice of “drip pricing” and other “junk fees” that can “rip customers off”.

• Junk fees are fees that are mandatory but not transparently disclosed to consumers. Consumers are lured in with the promise of a low price, but when they get to the register, they discover that price was never really available.

• Junk fees harm consumers and actively undermine competition by making it impractical for consumers to compare prices.

• Now, India’s department of consumer affairs has also warned about “drip pricing”, saying it can surprise consumers with “hidden charges”.

What is drip pricing?

• Drip pricing is a pricing technique in which firms advertise only part of a product’s price and reveal other charges later as the customer goes through the buying process.

• Consumers are shown an initial price for a good/service (known as the base price or advertised price) while additional fees are revealed (or “dripped”) later in the purchasing process. 

• The distinguishing characteristic of drip pricing is that rather than the prices of add-ons being provided to consumers simultaneously alongside the base price (e.g. delivery, service or booking charges displayed at the same time as the base price as is the case with partitioned pricing), they are presented to consumers later as they progress a transaction. 

• Under drip pricing, a consumer must go through several stages in the transaction process to arrive at the final price.

• Consumers might select products with a lower base price and, due to behavioural biases, often choose to complete the purchase despite dripped fees sometimes rendering the final price of the item greater than some alternatives.

• The additional charges can be mandatory charges. Drip pricing is used by many types of firms, including internet sellers, automobile dealers, financial institutions, and rental car companies.

• In recent years, restaurants have begun instituting more severe drip pricing.

• Drip pricing techniques undermine price transparency and make it difficult for consumers to make efficient purchase decisions based on price. 

• This can result in the consumer paying a higher price or spending more than they realised they would.

• As it leads consumers to spend more than they otherwise would under transparent pricing conditions, this lack of transparency also undermines competition and prevents transparent businesses from gaining sales.

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