Why you cannot separate Information and hustling
By XN Iraki
| July 28th 2021
Last week, I went shopping for a phone charger. The first shop I visited sold it for Sh3,200. Dissatisfied, I checked in another shop around the corner to see if I could get a better deal. Here, the same charger cost Sh1,800.
That the price of an item largely depends on where it’s bought shouldn’t surprise any economist or hustler. We rarely have enough information on the true cost of a product. Suppliers have it, giving them a leeway in setting the price to their advantage. Think of it, if a pen costs Sh20, you will never know its true production cost. It could be Sh5, but you are happy to buy a “cheap” pen.
The same applies to traders and hustlers. You rarely know the price they bought their products. Their objective is to make lots of money.
They test the price by setting it high and then give you a bargain. You go home happy for getting a discount. However, the seller is left smiling. High-end outlets do the same. If the price is discounted from Sh5,000 to Sh3,000, how can you know the previous week’s or the standard price?
To get the best price, one could check all the sellers or producers. But the sellers or producers precisely know that’s impossible as its costly and time wasting. You can’t spend time and money visiting the city centre, Githurai or Westlands to get the lowest price of an item or service. Even going online costs you time and money.
That information asymmetry, one party having more information than the other, is what drives hustling. You may have noted that in stalls, prices of some items are the same or very close.
Customers have choices and sellers know if they overprice, customers will just walk away to the next shop. The cost of searching for a lower price is low. For big or rare items, searching is not necessary. We know the sellers and their high prices. Think of planes or combine harvesters.
The information asymmetry makes price discrimination possible. You pay different prices for the same item or service like shaving. If keen, you will notice that you rarely bargain in supermarkets or high end stores. It is considered prestigious to shop in those places and bargaining would “cheapen” you. You feel good to be among the few who can afford to patronise such places. The ambience and “feel good” easily pacify you.
Lack of information creates abnormal profits for both hustlers and non-hustlers. Luckily competition reduces the profits as new entrants try to also make money. The more players there are in sector the more information there is, and the lower the prices. There are only a few 5-star hotels, but thousands of kiosks. Where do you pay more? Have you made money from information asymmetry? Talk to us.
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