Perhaps James Daley could be encouraged to learn some economics?


This rather surprises us even if, perhaps, it shouldn't. That a man can reach a senior management position, reach middle age in fact, without having the first clue about how products are priced by those who sell them. James Daley, used to be of Which?, is railing about credit cards fees being charged.

But the likes of Ryanair and Easyjet are still charging 2pc. While British Airways charges a fixed fee of £5 a ticket – which can amount to a double digit percentage on cheaper shorthaul flights. The reason that companies have been getting away with this is that no one is enforcing it. Strictly speaking, it falls to the under-resourced Trading Standards. But consumers are also in their rights to challenge companies in the courts. I’m seriously considering doing just that. I’ve spent several thousand pounds on flights over the past few years – and I’d like to challenge the airlines to justify the excessive credit card charges that they’re passing onto their customers.

This is all about credit card fees that airlines and others are charging us to purchase things over their websites. And Daley has entirely missed the underlying point here. Companies do not charge us on a cost plus basis. Nor should they: we would not like a world in which they did. Suppliers of whatever it is charge us the maximum they think they can get away with: the greatest price consistent with profit maximisation. And that's how it should be too.

If we had a static economy this would not be true: but thankfully we do not and we would not want one either. The point being one that Adam Smith noted, we actually want people to make excessive profits. For, as he noted, capitalists are both greedy and observant. They'd like to be making more than the average level of profit: and they will note when someone comes up with a plan to do so. They will then invest in that area producing that excess profit and the resultant competition will bring that profit down to average again.

And yes, we want this to happen in a non-static economy: because that's the thing that advances it by stopping it from being static. Some new technology comes along, and a new technology can be anything from a smartphone to the idea of unbundling the package that used to be air travel into the seat, the meal, the drink, the luggage and yes, even the paying by credit card and then charging for each separately, and if it works then people will copy it. Ryanair started, Easyjet followed and we're at the point now where almost all short haul carriage uses this model. Because profits are higher through using it and given the amount more we all fly so is consumer surplus. We're all better off as a result of this new technology.

This system is dependent not upon regulation of prices, not upon set margins for certain actions, but upon being able to gouge the customer for as much as said customer thinks whatever it is is worth. For it is the excess profits from doing exactly that which foster the competition that makes this new idea, new technology, near universal.

When people have alternatives, whining about the fee for one method or another of doing something is simply economically illiterate.

And yet these people are able to influence the legislation we all live under? Sheesh.