$6 bil/yr wasted on printers by focusing on price rather than total cost of ownership
In my previous post, I noted how frequently “smart” people make dumb decisions by focusing on the wrong information. Here’s a great example: Buying color printers.
Outraged by the price of printer ink and the tiny quantity of ink in each expensive cartridge, I recently began investigating color printers in hopes of finding one with a low cost per printed page.
It’s shockingly difficult to compare printers by cost of ownership, which should be a top buyer concern. Instead, buyers focus on the cost of buying the printer, largely ignoring the much more substantial photo paper and ink cost of operating the printer.
Printer manufacturers know we focus on the printer’s sticker price, so they keep printer prices artificially low and ink prices artificially high. Many printers sell for even less than they cost to manufacture because profit margins on ink are so high.
The American Consumer Institute last year estimated that consumers waste $6 billion a year through distorted printer purchase decisions:
Consumers [a]re being lured into buying inexpensive printers, only later to pay substantially more for ink. In a recent ConsumerGram, we concluded that giving all consumers more information on the cost of printing and printer ink would help them to make well-informed purchasing decisions and save $6 billion per year. However, without industry standards to help consumer know the cost of ink over the life of the printer, these savings will never be realized.
The Institute says “Lack of Information is a Market Failure,” but it’s actually a great market success. Buyers' dumb decision-making allows printer companies to get us to overspend by $6 billion a year. That’s $6 billion more in revenue for them. The sell-side of the market is operating extremely well.
Markets do not solve all problems, as this example demonstrates. Government has an important role to play in keeping markets fair, and the $6 billion in wasteful spending on printers is actually an appalling regulatory failure:
Ink is one of a handful of products that are exempt from Federal Trade Commission regulation under the Fair Packaging and Labeling Act. This means that printer manufacturers can “slack fill” their products and profit from them; and evidence suggests that this is happening today, as some ink jet cartridges contain only one-tenth of the volume that some cartridges contained in 1999. Because there is insufficient labeling on printers and cartridges, consumers do not know the true cost to operate a printer before buying one. According to a 2007 TeleNomic Research study released by the Institute, this lack of information has led to increased industry ink prices, excessive profits and high market concentration – all to the harm of consumer welfare.
Posted by James on Tuesday, November 17, 2009