We Gouged Too Hard
Recently I went to a convention in a mid-sized city which relies heavily on tourism (from conventions and other events). I was in a cafe eavesdropping on a couple of locals who were clearly in the business, discussing the drop in revenue in the last couples years. "I think we gouged a little too hard," said one to the other.
From my brief experience of the place, this seemed evidently true – the only surprise was to hear someone saying it. At the convention center, no external food was allowed, pizza slices cost $8 and bottles of water were $5. I am truly fine with being gouged a little at a convention, it feels like it's part of the experience, but this felt indecent.
It's generally risky to have opinions about other people's business practices, because they both 1) have a lot more data than I do, and 2) have a much better incentive to get things right. So it's possible that they're making the correct decisions to maximize their profits, which (as local monopolists) inevitably does not align with my interests as a consumer. But I often get the feeling that businesses are miscalculating the long-term impacts of their gouging: overcharging people might maximize your profit-per-customer in the short term, but if you scare away your customers then in the long term it's not worth it.
For example, I often have this suspicion about the rampant inflation in default tips on the little screens at checkouts these days. One barbershop I went to offered default tip options of like 30%, 40% and 50%. I will never go back there, literally because the tip-screen felt so inflated that I just don't want to deal with them any more. And I think this might be where the errors creep in: the proprieters get very good data from their software on how much profit-per-customer has increased thanks to these tip defaults, since most people are too polite or awkward to enter a custom tip amount lower than the options presented on their screen.
But the system doesn't (and can't) give them data on how many customers don't return because the pricing feel exploitative. There is something about it that goes beyond the money and into a primal instinct about justice and fairness, the kind of thing that makes undergrads participating in behavioral economics experiments reject a non-zero payout just because it feels like the other party is being a dick.
There's plenty of other businesses that, from the outside, seem to be overgouging. I've heard it said about movie theaters, that ticket prices are high enough that young people don't get into movie-going, and while this might be profit-maximising for the cinemas in the short term, it's going to cause their ruin in the long run. (I've also heard it about Hollywood, as a film-shoot location: they have so many unnecessary costs and obstacles to shooting films there that they strangled the golden goose).
You might argue that this is a tragedy of the commons, in that the separate theater companies are profit-maximising in the short term and nobody has an incentive to look after the long-term health of the industry. But I've also heard this claim about Disneyland – tickets are no longer affordable for families, which means that Disney makes more money in the short term through affluent childless adults, but might be eating their own seedcorn when the next generation no longer cares about Disneyland-going. And Disneyland seems like a sufficiently unique, market-power-having and long-term planning institution that they ought to be able to strategize for the long-term.
Again, these businesses all have more incentive and more information than I do, so maybe they're indeed doing what's best for them and it's just not best for me. But I suspect that like the people I overheard in the mid-sized convention city, they will eventually come to the realization that they gouged too much, and should have gouged more modestly.