economics - where to begin?

This is pretty simple compared to a lot of what gets discussed here, but has anyone written about the proliferation of no interest financing of consumer products? I feel like everything I buy on the internet now has the option to pay in installments. I assume some kind of financing cost is simply baked into the price, so does that make me a sucker for not taking advantage of it? It’s a phenomenon that bothers me.

I became particularly aware of it when I got what seemed to be a dramatically inflated quote for Andersen windows and when I complained about the price their response was “were you told about our financing options?” Like as though it’s fine to overpay if you don’t have to pay it all now.

quite often it's a separate company that does the financing and so yeah the company selling the product is paying a cut to the financing company. in australia, afterpay is one of the biggest buy now pay later financing companies and they're actually allowed to prevent retailers charging the customer more to use afterpay (https://www.abc.net.au/news/2020-12-07/buy-now-pay-later-players-wont-be-asked-to-pass-on-retailer-fees/12956250)

I assume the following:

they charge more, or they charge some sort of fee for using the service
they charge for missed payments, making the whole endeavor worthwhile

I assume they're also have a vested interest in the buyer maybe missing a couple payments, which will make the interest-free part null & void... and also warrant a hefty late fee or something.

What about "make no payments for 48 months!!"?
And then four years later you have to start paying for a used mattress.

jinx

so does that make me a sucker for not taking advantage of it?

I suppose this really depends on your own utility function. Personally I am averse to "taking advantage" of 0% financing as I prefer the certainty of the up front cost. Keeping track of payments and direct debits for me would be a negative burden that would outweigh any potential benefit (at least in the era of low interest rates on deposits, and where I am lucky enough to have met my immediate needs, and have a cash surplus).

I guess the analysis of this will fall somewhere within intertemporal choice theory - and if we are inclined to accept a much higher prices of goods with 0% financing there could be a number of explanations (e.g. a significant intertemporal discount rate, imperfect information, imperfect processing power etc.?).

In so far as the financing cost being baked into the price, perhaps instead this could be viewed it as a method of price segmentation? On the assumption there is a correlation between the price elasticities of consumers and their likeliness to use financing.

Sketching it out let's say you have two groups of consumers for a given good -

(1) price elastic consumers who are less likely to invoke 0% financing options for a number of potential reasons (e.g. differing utility functions, or vanity, or perhaps just inexperience with such financing options because they have not needed to use such options in the past); and

(2) price inelastic consumers (who are potentially more experienced with 0% financing or their circumstance dictates that they must use it to get what they are after).

Let's say a profit maximising producer makes a supply to the market at price X in the case of no financing.

And in the case of financing being used the producer's price is effectively (X-B) - where B is the cost they pay to a third party (Payl8r for example) for taking the risks of the financing side. But by doing so this allows the producer to sell to type 2 consumers that they would otherwise miss out on, presumably without dramatically decreasing the full price X income from the type 1 consumers? Something to chew on.

Definitely interested in reading more on this type of stuff.

I suppose there is a parallel in price segmentation in the fact that if you search for them you can find discount codes for many websites, but not everyone searches for them

and we definitely shouldn't discount the additional time cost to the consumer signing up to financing or searching for discounts

I wasn't thinking of it in terms of stealth price differentiation, but it makes sense.

I assume the following:

they charge more, or they charge some sort of fee for using the service
they charge for missed payments, making the whole endeavor worthwhile

i don't think its the price discrimination thing. cause it's the same price to buy on layaway at 0 interest. its actually cheaper cause you could lend the money in the interim and make the interest. interest rates are low and no one would realistically do that for retail purchases, but still

fizzles is otm here:

the obvious benefit is that they will sell more because more people can afford it on a per month basis. even without factoring in fees it’s worth the margin hit.

the buy-now-pay-later service gets fees from the retailer directly, about 5% per sale according to this. that's where the bulk of the money comes from. the article says fees are a minority of the revenues. is it worth it for the retailer? they still get 95% from each sale. so if the price stays the same, they lose 5% on people who would've purchased anyway, and gain 95% on people who wouldn't have purchased without buy-now-pay-later. so as long as there is 1 person who was induced to buy by buy-now-pay-later for ever 20 who buy-now-pay-later'd but would've purchased anyway, it's worth it for them

retailers may be raising prices in response to this; it is a positive demand shock. i doubt by very much, but i could be wrong

1209 to 2019

The Bank of England governor says that cryptocurrency investors should be prepared to lose all their money 🤡 pic.twitter.com/OgNk143iIC

— Aleksandra Huk (@HukAleksandra) May 8, 2021

Wow can’t believe the standard of living of your average £1/year laborer has declined so much in the last 800 years

???????

That graph is 100% accurate and completely useless as a means of understanding economics, finance or money.

Yeah, a lot of crypto supporters think low inflation is a bad thing.

I haven't read the book this is reviewing, so the review may be deeply unfair, but I agree with the review's argument that much of what gets criticised in 'economics' is really just 'the right'. https://t.co/C9qi7XqrIx

— Lafargue (@Lafargue) May 20, 2022

https://www.epi.org/anti-racist-policy-research/disparities-chartbook/#laborcharts

I note that this thread on economics already existed.