The most insidious part of online shopping is about to get even worse

All I wanted to do was attend a concert.

I was ready to pay my hard-earned money to see one of my favorite bands perform at New York City's Madison Square Garden. Ticket buying is simple enough in theory — but as I went in pursuit of the tickets a few months ago, I was prepared for a fee shock. For years, the initial price of tickets has been a tease — after totals are adding up during checkout, the final price is often an unpleasant surprise.

After making my way to the front of the dreaded virtual ticket queue, I scored three tickets. But when I got to the checkout, something shocking happened: There were no pricey add-ons — no service fee, no processing fee, no convenience fee. 

Had something gone wrong? Had I gotten away with purchasing tickets at face value? As my initial fervor subsided, I had a second realization: Those tickets weren't cheap! Even compared with previous events at MSG — including a concert by this same band — the tickets felt much more expensive. But the total cost was the same as previous tickets I'd gotten. Instead of being tacked on at checkout, the fees I had been dreading were baked into the up-front price. The company still got their fees, but my user experience was different.

Every time we log on to shop, buy a new cable plan, or book that long-awaited vacation, companies have been playing psychological tricks to lure us into paying more than anticipated. And these hidden fees have spread from big-ticket splurges to nearly every type of online transaction, Neale Mahoney, a professor of economics at Stanford University who just spent a year on the White House's National Economic Council, told me. Now, he said, "there are so many opportunities for people to add fees" directly into your shopping cart.

"It's a combination of spreading of worse practices and the internet, which has turbocharged all of this," he said. 

While the rise of tacked-on fees has continued unabated for years, growing consumer backlash and President Joe Biden's recent initiative to eliminate hidden junk fees have pushed more companies to shift to transparent, all-in pricing. But this seemingly generous act is anything but. Companies are just baking all those fees into the total price — making the hidden fees even more hidden. That $20 booking fee and the $7 handling fee are still there, just shrouded in an extra layer of mystery.

The shift may seem insidious, but experts told me there's hope for a better, free-fee future: If every company adopts up-front pricing, consumers can begin to understand the true cost of things — and make more informed decisions that force companies to compete on price.

"There is good evidence that when you require firms to price in an all-in, up-front manner, that it makes markets more competitive. It's easier for consumers to comparison shop," Mahoney said. "That means that market forces are stronger, and that pushes down the total price that consumers are paying."

How the internet became fee city

Over the past 20 years, the internet has revolutionized how we buy things. Flights, concert tickets, pizzas, and even toilet paper are just a click away. The ease of use made the early web a buyers' mecca: You could see how much it would cost to fly on one airline versus another or compare the price of PC equipment on different sites. Sara Fisher Ellison, a senior lecturer at MIT who since 2004 has been researching pricing on the internet, told me that for a while, this transparency was good for price-conscious consumers.

"There have been times when the consumers did have an upper hand and were able to perform these price searches and comparisons in a pretty effective and efficient way online," Ellison said.

But that golden era of price search was short-lived as companies got more sophisticated. As sellers got used to the internet, they started to employ "obfuscation," as Ellison called it — methods of pricing jiujitsu that hid the true cost to eke out more profits. Instead of your airline ticket including baggage, food and beverages, and a "reasonable procedure to board the plane," Ellison said, all those have become unbundled. The price customers now use to compare across airlines is simply a base price — but the variable cost of add-ons, such as priority boarding and checked luggage, make it nearly impossible to tell which airline will actually end up costing you more. Obfuscation has cost consumers the upper hand: Companies can reel in customers with an artificially deflated price before jacking the cost up via fees — consumers spent over $5.2 billion on baggage fees in 2018 alone. It also lowers the overhead for many sellers: Instead of having to hire an army of Harold Hill-like master salespeople to upsell you, firms could just hide those premium costs on the checkout page.

"We suspected that firms would be really taking advantage of the fact that obfuscation was much easier and cheaper for them to implement," Ellison said. "And that seems to have very much been the case."

Your brain vs. your wallet

You may be thinking, "I am a savvy consumer. I always make sure I'm getting the best deal possible." Unfortunately, research has found that the obfuscation strategy can make it hard to even realize when you've been suckered. Vicki Morwitz, a professor at Columbia Business School who studies the psychology of how consumers interpret prices, identified two types of pricing tricks. One type, called partition pricing, is when a product's price is divided into two or more parts; she gave me the example of a cruise, where the cruise ticket is a base price and the mandatory port charge is labeled as a surcharge.

"When we, as consumers, see partition prices, our brain tends to focus on the base price," Morwitz told me. That bigger, more-salient number typically represents to us the cost of the item we want to buy. "We tend not to pay sufficient attention to those surcharges," she added. That means we underestimate what a partition-price item costs — so we're more likely to make that purchase. 

Even when we know there are those surcharges, we don't pay attention to them because we kind of think of them as the cost of doing business.

The other is called drip pricing. That's when charges that will get added to your total aren't apparent up front but are dripped throughout the process of purchasing. Think of the convenience fees that rack up as you buy a concert ticket, for instance. On the first page, you see the ticket price. On the next one, once you select your ticket, you see the booking fee. Finally, when it's time to whip out your credit card, you see a facility or venue fee. Drip pricing relies on a timed aspect: You invest a certain amount of time in each step of the purchase, with fees slowly revealed throughout that period.

"I may realize at the end: 'This ticket's a lot more expensive than I thought — and maybe there's another option where I could get the ticket cheaper.' But consumers tend not to do that," Morwitz said. "They tend to follow through on the purchase even when it's more expensive than they thought it was."

With drip pricing, consumers' brains trick them again: Morwitz's research has found that when you make it to the final checkout process and realize that your tickets are more expensive than you saw initially, you've already mentally committed to the experience. It can be hard to pull the plug so late in the process.

"Maybe because of 'FOMO,' they can already visualize themselves at a concert," Mahoney said. "They already can visualize themselves eating their dinner. They won't go searching for a cheaper option."

That's exacerbated by websites presenting big, flashing countdown clocks or telling you that there's just a few tickets left at that price. We assume the time we've invested in purchasing the tickets is a sunk cost and click buy — spending more than we intended and overestimating the cost of restarting our search.

How to combat it

There has been more drip and partition pricing over time, Morwitz said, largely thanks to internet shopping. The fee-laden model has become a part of online life and embedded itself into the psyche of many shoppers. 

"Even when we know there are those surcharges, we don't pay attention to them because we kind of think of them as the cost of doing business," Morwitz said. "We're like, 'Oh, well all the competitors must have them. They must be all more or less the same.'"

While consumers might say they want clearer, fee-free pricing — 51% of consumers surveyed by YouGov in July said it was important that they do not pay more than the price initially shown for concerts — they've rejected it in practice. Just look at the ticket-resale platform StubHub. The company moved to an "all-in pricing" model in 2014, meaning consumers would see how much their ticket cost up front. But instead of consumers flocking to single-cost tickets, they started to ditch the platform. Research on StubHub's pricing experiments later found that concealing those fees through drip or partition pricing increased revenue by 20% and that "experienced users" of StubHub still spent more when the fee was hidden.

"Unfortunately, the broader industry did not adopt all-in pricing, leaving buyers confused and StubHub at a significant competitive disadvantage," Laura Dooley, StubHub's head of global government relations, testified at a White House panel in March. "StubHub's all-in pricing confused buyers who assumed our prices were exclusive of fees and therefore more expensive relative to our competitors."

But even if people rewire their brains and become staunch anti-fee activists, the movement will need government action to support the fight. Without an industry overhaul, the companies that choose to do all-in pricing will go the way of StubHub: Our fee-addled brains will think they're more expensive and tell us to go purchase elsewhere. The practice needs to be widespread for us to actually be able to compare prices.

I have never seen a good justification of what I'd call mandatory hidden fees.

In Europe, for instance, all-in pricing is an obligation. That means that prices for things such as airline and train tickets have to include all costs — including fees and taxes — when you start trying to book; that's explicitly meant for consumers to be able to compare prices. The Canadian government is also looking to pare down hidden fees. The White House has begun to take on this fight in the US, launching several initiatives to help eliminate junk fees and raise awareness of hidden costs. The White House's hope is that a push to get firms including Ticketmaster and Zillow to have all-in pricing will not only aid consumer transparency but also increase competition to offer the lowest cost to customers. Michael Negron, the special assistant to the president for economic policy at the National Economic Council, told me that while the White House's campaign against fees would "start with the consumers — you raise awareness, you use the bully pulpit, hopefully push for positive private-sector action" — eventually there would need to be something "done via either a regulatory tool or a new law."

True costs

Much like how companies hid price hikes behind the guise of inflation, fees are hiding costs consumers can't fully process. It's what NPR called "fee-flation." Some fees may be necessary, but others, as Mahoney told me, are made up and designed to look like they're government-imposed, for instance, when they're not. Those are the fees that could be trickier to regulate as they get folded into pricing — the made-up fees will get more hidden. Thankfully, they're also the kind of "unnecessary, unavoidable, or surprise charges that inflate costs while adding little to no value" that have drawn the attention of the Federal Trade Commission. But in lieu of more government action, the move to up-front prices means that at least now we can fully see how much things cost.

Looking back at my concert ticket, I realized how much my music habits were costing me. Experts hope that the budgeting reckoning I experienced when faced with the true cost of my decisions can be replicated among other consumers. Eventually, people's self-realization and drive to comparison shop could end up pushing prices down. It could also help firms that are trying not to trick their customers, since the hidden-fees model penalizes companies who price accurately.

"One of the problems with the use of partitioning in pricing is it makes it very difficult for an honest business who wants to do the right thing to do so in the face of competitors who are using these practices," Morwitz said.

This constant battle between companies and customers has led to some creative solutions to the fee problem. In April, the artist Maggie Rogers invited her fans to come buy concert tickets in person at the box office, where they wouldn't be charged extra fees, saying that "there's been a lot of conversation about how intense ticketing fees are" and that she'd been thinking about ways to provide alternatives to fans. Others are also fighting back. 

"If you walk up to any of our box offices, you could buy a ticket to any of our venues and not be charged a fee," Audrey Fix Schaefer, the director of communications for I.M.P., an independent promoter in Washington, DC, that owns the 9:30 Club and the vice president of the board at the National Independent Venue Association, told me. In fact, some of her venues have roving box offices, which drive to different parts of the city or state to help music lovers buy tickets sans fees.

Of course, these one-off solutions won't kill the scourge of hidden fees overnight and are generally available only to customers with the time, ability, and savviness to circumvent an extra charge. But in the end, fees aren't a force of nature, and a concerted effort on the part of regular consumers and policymakers could move us to a better, more-transparent future. After all, Mahoney told me, "I have never seen a good justification of what I'd call mandatory hidden fees."

Juliana Kaplan is a senior labor and inequality reporter on Insider's economy team.