Drip Buy

The cunningness of hidden fees

iPad with Stubhub Order Screen

There’s a reason online ticket sellers hit you with those extra fees after you’ve picked your seats and are ready to click “buy.”

Pure profit.

A massive field experiment by Prof.Steven Tadelis with the online ticket marketplace StubHub concluded that so-called “drip pricing”—whereby additional fees are only disclosed at checkout—resulted in people spending more than those shown all-inclusive prices up front. It’s a particularly effective strategy for online sales, which in the past two years have overtaken brick-and-mortar shopping.

For the experiment, StubHub randomly assigned half of all U.S. users, who count in the millions, to a hidden fee structure: Buyers saw only the ticket list price as they shopped; extra fees were displayed on the checkout page. The other half of users saw all-inclusive prices, which included fees and taxes generally amounting to 15% of the ticket price plus shipping and handling.

Overall, the StubHub users who weren’t shown fees until checkout spent about 21% more on tickets and were 14% more likely to complete a purchase compared with those who saw all-inclusive prices from the start. Those in the hidden-fee group also bought pricier tickets.

The findings raise questions as to whether consumers have a right to full price transparency up front. Tadelis noted that some governments have regulated this behavior—Canada, for example, banned drip pricing for ticket sales.

“I can’t think of a good reason to allow this practice in any country as the harm to consumers is clear from our study,” Tadelis says.