Is Caveat Emptor the Dominant Business Principle Of Our Time?

A great article from John Kay on what the $10 minibar beer has to do with the financial crisis.

…have you struggled to understand your mobile phone bill? Bought a cartridge of ink that costs almost as much as the printer? Do you fill in your personal details on an insurance comparison website every year, or just accept uncompetitive renewal terms? Have you used the internet or the minibar in a hotel, or watched the teaser offer on a mortgage revert to a standard variable rate?

Products are complex, and time is scarce. Consumers focus on a few headline prices and features when they make their choices and so competition is focused on those headline prices and features. …

Show me the person who has actually read the “important information” you must understand before entering the website of an institution regulated by the Financial Services Authority, and I will show you a man who has difficulties with girls….

Many people may think the problem of the $10 minibar bottle of beer is unimportant in the context of financial crisis and global macroeconomic imbalances, or that the costs of a regulatory drive would exceed the likely benefits. I disagree. Encouraging bad decisions through teaser mortgage rates was a central contributory factor in the financial crisis. Business practices whose rationale derives from consumer ignorance and producer knowledge create a larger problem. When people see many examples of minor exploitation of consumers in their daily lives, they will conclude that extensive exploitation is characteristic of business as a whole….