Traffic jams, heatwaves and hidden charges: you know they’re coming but somehow they are impossible for the holiday-maker to dodge.
This summer, after online comparison shopping, we paid a vast sum for the privilege of collecting a hire car in Germany but dropping it off in Italy. Surprise surprise, when we reached the Avis office in Garmisch-Partenkirchen, they wouldn’t hand over the keys until we paid an extra fee.
The problem was, they explained, that while we had paid to drop the car off in Italy we hadn’t paid the charge for driving in Italy. (Presumably, the online price assumed that we would wrap up the car in brown paper and ask Deutsche Post and Post Italiane to deliver it to Bologna for us.)
The charge wasn’t optional, so why hadn’t it been mentioned when we booked? My wife’s blood started to boil. I started to chuckle and take notes for this column.
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But wait; loyal readers might be feeling a sense of déjà vu. Haven’t I described this exact scenario before? Yes I have, back in the innocent days of 2019. The situation was different, though. That was Europcar. This time it was Avis. Different company, same trick.
Why doesn’t competition do away with such nonsense? One possibility is that the forces of competition are simply not strong enough: Garmisch-Partenkirchen is popular with tourists, but it’s not a big place, and there aren’t that many international car hire firms there competing for your business.
A second possibility is that we customers just aren’t quite savvy enough: the trap yawns in front of us but we don’t watch our feet and we stumble in every time.
That second possibility is an intriguing one. Everyone hates being ambushed by an extra fee, so why doesn’t a car hire firm win business by proclaiming that they impose no hidden charges?
The answer, proposed two decades ago by the economists Xavier Gabaix and David Laibson, is that such a proclamation might backfire. What about customers who look at the hefty price tag of the company that charges everything upfront and think to themselves: “If I can dodge the hidden charges I might be better off with the competitor.”
Consider the traveller facing a choice between Hotel UpFront where the room is expensive but the phone, wifi, minibar and parking are all sensibly priced, and Hotel FlyTrap, where the room is cheap to lure in the suckers who make costly calls and drain the minibar. A moderately savvy customer might prefer the all-inclusive Hotel Upfront. A truly savvy one will arrange for a virtual SIM, drop in at the local 7-Eleven to pick up a cold beer and some snacks, then stay in Hotel FlyTrap, their cheap room subsidised by the suckers.
In other words, “no hidden charges” also implies “if you can avoid hidden charges, you should choose our competitors”. The hidden charges can flourish, write Gabaix and Laibson, “even in highly competitive markets, even in markets with costless advertising”.
All this is annoying, and it raises the prospect of customers buying products that they would not have chosen if they had been told the truth. My wife and I had been wavering over taking the train to Italy and hiring a different car there; if Avis had listed all their fees up front, perhaps that is the choice we would have made.
And there is a more systemic problem, too. Even a customer who spots every trap and jumps through every hoop may find themselves paying too much. This is because all the obfuscation and misdirection weaken the incentive for any company to offer a good price. If only a handful of customers are conscientious enough to figure out the best deal, they may find that the best deal wasn’t really worth figuring out anyway.
So what can be done? One straightforward approach is to insist on transparent, all-inclusive pricing wherever feasible. The UK’s Digital Markets Competition and Consumer Act 2024 requires this, and new guidance from the Competition and Markets Authority would seem to explicitly forbid the car-hire company practice of adding a compulsory extra local charge. (The CMA argues that even if a charge such as a tourist tax is inevitably paid later and in local currency, it can and should be mentioned at the time of booking.)
These transparency rules are all very well as far as they go, but in an ideal world products and services would be sold with maximum comparability. I should be able to ask a price comparison website or even a digital agent to take my requirements, search the web, and return with the best deals.
This was the concept behind the “midata” initiative floated by the UK’s coalition government in 2011, which pushed for standardised, machine-readable terms in banking, mobile phone contracts and energy bills. The idea was that you could download information about your phone calls or electricity use, upload that data into some sort of comparison engine and be told which provider was best for you.
Now we are told that AI agents will start navigating the web’s dark patterns for us, defusing the booby traps and defanging the predators. I wonder about that.
Midata has been only a partial success, making much more progress in banking than energy, but the more complex a product the harder it is to make sensible comparisons.
Each person has their own pattern of phone use or energy consumption, but at least those patterns vary in ways that are easy to compare. But take more idiosyncratic products, or one-off purchases, and the complexities compound. Where and when did you want to drive that car? How good a view do you want your theatre tickets to have, and would you like to include drinks at the interval? We want variety and choice, even customisation, but we also want honest, comparable pricing. And as a fellow once said, you can’t always get what you want.
Perhaps better technology and better rules will prevent price ambushes in future, but it is more likely that customers will find themselves acting out a version of the serenity prayer, wishing for the savvy to spot the price traps that can be avoided, the grace to accept the price traps that cannot, and the wisdom to know the difference. Failing that, “stay away from the minibar” is never bad advice. – Copyright The Financial Times Limited 2025
