As the recent nickel tax on D.C. shopping bags has taught us, consumers don't like paying for something that's free. At least, something they've come to expect for free. When the D.C. public woke up to find themselves caught between buying the once-free shopping bags or displacing them with free alternatives (struggling with un-bagged groceries, using non-disposable satchels, etc.), many opted for the latter. And it's not too surprising why: when your cognitive anchor is $0.00, any price whatsoever seems excessive.
But it is worth noting that some people still paid. Clearly, using non-disposable substitutes or fumbling around with loose items isn't entirely cross-elastic. If it were, the infinite price hike on the shopping bag (free to non-free) would have shifted demand proportionately. Bag use would have approached zero as the cross-elastic alternative picked up all that unmet demand. In other words, there must be some qualitative difference between bags-as-goods and non-bag substitutes. Because, if not, the infinite increase in price would have occasioned an infinite decrease in use.
And I think our intuitions bear that out. We don't just choose disposable, one-use shopping bags based on price cues. Bag vs. non-bag isn't a perfect, cross-elastic comparison: It's not like purchasing petrol from the Kwik stop vs. the Mobil right next door. Instead, they're "imperfect substitutes." If Mobil sold petrol at $2.64/gallon and Kwik Stop at $2.63, I would never buy Mobil. But if plastic bags cost a nickel and my other options were free, I might still decide to pay. Perhaps it's the freedom of running errands without a sack around to use. Perhaps it's the convenience of keeping my routine the same. Perhaps it's a bundle of things, but none of which the substitutes can replace. In that sense, it isn't surprising that some people pay: whatever the cost of using shopping bags, it's the purchase of something distinctive–a quality that's forfeited with substitutes.
But that raises a separate issue: how to value that distinctive-something. When you've paid for it before, that isn't too difficult. Let's say there actually were qualitative differences between the Kwik Stop and the Mobil: Mobil has pay-at-the-pump, which you prefer. You usually fill up there, unless you see a compelling price argument against it. Then, on some cold wintry morning, you find yourself torn between saving 5 cents a gallon and going inside. That means, to you, pay-at-the-pump is worth at most 5 cents/gallon: even when it's most persuasive, you're still on the fence for 5 cents. But you've often been persuaded for less, even on days when the weather's lovely. So, to you, the value you is probably a couple of cents per gallon, or around 25-30 cents per transaction. Easy.
But let's change the hypo. Say you've never been to a petrol station without pay-at-the-pump. In fact, even Kwik Stop has one, and you've never given too much thought to going in. Then one morning you wake up to an announcement: all statewide pay-at-the-pumps are to implement a fee. Ten cents per transaction. If you really are the same person in hypo one, it shouldn't matter. After all, we've determined what it's worth to you, and that's well over a dime. You should still use the service. You might bristle a bit at the surcharge, sure. But your habits shouldn't change.
But, of course, the context's changed: you've never had to pay before, and so the value conferred seems less. Regardless of what your alter ego thought, paying for pay-at-the-pump now seems like a rip-off. You've never had to pay before, so why should you start now?
In behavioural econ, we make a distinction between "acquisitive" and "transactional" value. Paying at the pump has a different acquisitive value in each hypo: in one it's 25-30 cents, in the other it's something less. But what accounts for that difference is a difference in transaction value. In hypo one, 25-30 cents has a transaction value of zero. That's always been our referent, so doesn't sting to pay. But in hypo two, our referent is free! So 25-30 cents has a less-than-zero transaction value (a transaction cost). And so would a dime, and so would any non-zero price. That means spending a dime in hypo two costs you more than ten cents. Think of it this way: if you decide to pay, it's because avoiding the alternative (going inside) is worth both that price and the cost of paying it. It's independently expensive to buck up and pay the piper: you suffer the feeling of getting bilked. And so whatever the initial outlay, the overall cost is greater. That means the overall willingness to pay (WPA) in hypo two is always discounted for transaction cost. Voilà, we've found what accounts for the two discrepant acquisitive values!
But now apply that to the shopping bags in D.C. In all likelihood, I bet those bags would fetch five cents each–widely, too. But it's not just the nickel shoppers part with: it's the cost of having to pay in the first place.
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