Executive Summary

• Deceptive pricing in various industries most evidently in the hotel and ticketing industry, prompted the FTC’ to propose rules to combat hidden fees and protect consumer interests.
• The proposed Trade Regulation Rule aims to penalize violators, compensate consumers, and enforce transparent pricing.
• The broad scope of the proposed rule presents intricate challenges across various industries, highlighting the necessity for a more targeted approach towards the ticketing and hotel sector.

Introduction

Consumers have become victims of deceptive pricing in various industries, notably in the ticketing and hotel sector. Firms have been using these practices known as  “price dipping”  or “bait and switch” pricing where mandatory fees are not disclosed until checkout significantly increasing the total cost without knowing the purpose of the fees. Customers already invested time and effort in their selection process, therefore they feel a sense of commitment to their purchase which makes it difficult for them to walk away. Surveys from Consumer Reports 2018 highlighted that a staggering 85% of Americans experienced hidden or unexpected fees in the previous two years, with 96% finding them highly annoying. Due to the 12,000+ public comments supporting government action in response to the ANPR (Advance Notice of Proposed Rule-making) series of questions, the FTC seeks to introduce a trade regulation on unfair or deceptive fees. This regulation ensures that the advertised price includes all mandatory fees to reflect the true cost of a good or service while penalizing violators aiming to compensate consumers who were harmed by these practices which was cited by Section 13(b) of the FTC Act.  The proposed rule also considers banning fees that the FTC considers “excessive” or “worthless”.  The FTC also  intends for this rule to promote fair business competition that enables consumers to compare prices transparently, but the proposal’s overly broad scope could negatively impact workers and small businesses

Live Event Ticketing Fees

When consumers think of price dipping, live event ticketing is the first sector that comes to mind. It is impossible to obtain tickets at the initial upfront prices due to ticket sellers inflating prices due to demand and hidden fees that significantly increase the total cost by 30 to 40%. The individual will see a lower base price when comparing ticket vendors but will see the additional service fee “dipped in” when they are inputting their payment method. In a study from the Council of Economic Advisors, Vance Joy Concert Tickets in March 2023 had an advertised base price of 87 dollars on SeatGeek and Vivid Seats. However, after including tax, service, convenience, and delivery fees the true total was between $123.98 and $128.26. Consumers do not know if the nature of these fees accounts for the actual service and delivery that was elicited when the transaction occurred, especially when they were downloaded virtually. These unreasonable costs were a mere tactic to raise revenue.

Hotel Fees

Hotel “resort” fees have been a long-time, popular frustration amongst consumers because most fees are often excluded from the advertised nightly rates by third-party online travel agency sites. Consumers find it difficult to compare hotels because mandatory add-on fees, such as those covering amenities like wifi and access to fitness centers, are often assumed to be included in the advertised price of the hotel room. They believe they are saving money on these sites but they are still paying the mandatory fees even when they are not using these amenities. These fees are commonly charged during check-in rather than at the time of online purchase.  Even after the FTC warned hotels in 2012 to disclose prices upfront, complaints about the fees persisted

Broader Industry Implications

The FTC’s proposed regulation would have economy-wide coverage to establish a level playing field that ensures all businesses follow a common set of standards for equitable competition to foster transparency for all types of consumers. This approach aims to prevent regulatory gaps and shortcomings that might otherwise enable bad actors to shift their operations to less regulated sectors. However, as this comment from the George Washington University Regulatory Studies Center notes, the cost-benefit analysis applies the practices of the hotel and ticketing industry to a wide range of other sectors. FTC taking on such an expansive scope will create broad rules that will harm businesses and consumers due to inconsistent compliance and enforcement of the rules with the limited resources of the FTC. Industries vary significantly in structures and market dynamics. What works well in one industry may not be suitable for another potentially leading to suboptimal outcomes when overlooking their differences. For example, the live ticketing industry is characterized by a few major players who dominate the ticket sales market because of their exclusive partnerships with venues and promoters. Therefore, you cannot apply the same regulation rules to the restaurant industry which tends to be characterized by a diversity of small and independent businesses that create a competitive market as this can harm local economies, reduce consumer choice, and burden smaller establishments with compliance costs. The National Federation of Independent Business underscores how broad regulations often impose extensive compliance costs that require small businesses to invest significant resources in understanding and adhering to complex rules. These challenges impede the growth and efficiency of small businesses as they divert valuable time and energy away from core business operations

The FTC should consider limiting its scope to the live event ticketing industry and the hotel/short-term lodging industry because extensive research has been conducted on how dip pricing is harmful to consumers which increases the possibility of full compliance. This ensures that regulatory measures are tailored to the specific challenges faced by consumers in these sectors while allowing space for legitimate and beneficial fee practices to thrive in other industries. By focusing on areas of expertise, it allows the FTC to dedicate sufficient attention and effort to the issues that matter most allowing them to optimize their limited budget which is crucial in the rapidly changing landscape of business and technology.

As consumer preferences vary across industries, tailored regulations can address industry-specific consumer expectations, ensuring that regulations align with the preferences of the target audience. For example, if the FTC considers categorizing add-on fees in the car manufacturing industry as “excessive” or “worthless” fees consumers will either have less say on their preference of car design or the car manufacturer would have to produce various versions of cars with different optional features increasing cost and potential delays. The FTC’s tailored approach ensures a balance between safeguarding consumers and fostering fair business practices.

Conclusion

The prevalence of “price dipping” or hidden fees has long been a concern that forced consumers to pay more than the initially advertised prices.  Consumers have expressed frustration with these mandatory fees that are only visible during the final stages of a transaction. While the proposed rule aims for transparency and fair competition, its broad scope raises challenges that affect businesses across the board. To strike a balance, the FTC should consider narrowing the focus to the ticketing and lodging industries, where in-depth research supports the necessity for specific measures.