STACEY VANEK SMITH, HOST:
KAREN DUFFIN, BYLINE: Hi.
VANEK SMITH: I have lured you over from Planet Money today to talk about a story that is close to my heart.
DUFFIN: And mine.
VANEK SMITH: The pink tax.
DUFFIN: That's right. The pink tax refers to this idea that products for women tend to cost more than products for men.
VANEK SMITH: New York actually did a really comprehensive study including everything from, like, toys for little kids and home health care products for seniors and clothing and the works. And they found that women paid more in about 30 out of 35 product categories. And in some cases, it was a lot more.
DUFFIN: This is THE INDICATOR FROM PLANET MONEY. I'm Karen Duffin.
VANEK SMITH: And I'm Stacey Vanek Smith. Today on the show, the pink tax - why women pay more for things and why a lot of economists say this is a good thing.
DUFFIN: Also, Stacey might be breaking up with economics.
VANEK SMITH: We have been growing apart for a while.
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DUFFIN: Today's indicator is 13 percent. In New York City's report on the pink tax, the price women were paying for things like clothes and home health products tended to be about 7 or 8 percent more than the price that men were paying for comparable products. But there was one category where women were paying way more, 13 percent more.
VANEK SMITH: Personal care products. That is deodorant, razor, shampoo, body wash. Women were paying on average 13 percent more than men for the same product. And, you know, when I saw this, I was like, that is not true. There is no way that's true, that women are paying 13 percent more. Women would notice this. We would never stand for this.
DUFFIN: So we went to see for ourselves.
VANEK SMITH: Yes.
DUFFIN: We went to the Walgreens in Times Square. And we started in the razor section.
VANEK SMITH: OK. This appears to be the dividing line.
DUFFIN: OK. Yeah, you can tell because there's blue on one side and pink on the other. We figured we would look for the most basic, the most barebones, razor for both men and for women, and we would see how the prices compare.
VANEK SMITH: Here we go. What about these?
DUFFIN: This has ten razors.
VANEK SMITH: OK.
DUFFIN: Six dollars.
VANEK SMITH: We have to look at the price per unit here.
DUFFIN: Oh, unit price. Men's razors are 59.9 cents per razor.
VANEK SMITH: OK. The price per unit for the Daisy Razor, which is...
DUFFIN: Basic, right?
VANEK SMITH: ...Super basic. I mean, there's - yeah, no, it's the same. It has the same...
DUFFIN: They have a little strip-thing on top.
VANEK SMITH: No, but those do too.
DUFFIN: Those too. OK.
VANEK SMITH: Price per unit's $1.25.
DUFFIN: That is infuriating. That's double. Oh, my God.
VANEK SMITH: I know.
DUFFIN: These are literally the exact razor.
VANEK SMITH: It's the same razor.
JENNIFER DOLEAC: So this is a classic example of what economists call price discrimination.
VANEK SMITH: Jennifer Doleac is an economist who studies crime and discrimination. And she says this particular kind of price discrimination happens when companies divide a market up into segments and charge a different price to each segment.
DUFFIN: We compared the prices at Walgreens and a nearby Duane Reade - shampoo, body wash, face lotion, deodorant, men versus women. And it is clear. Companies have divided the market up into men and women, and they are charging women more.
VANEK SMITH: But women earn less than men do.
VANEK SMITH: So why...
VANEK SMITH: Are, like, economists cool with this (laughter)?
DOLEAC: (Laughter) Yeah. I think - I mean...
VANEK SMITH: What?
DOLEAC: ...Price discrimination is super efficient.
DUFFIN: But why is it more efficient for women to pay more? How is that good for the economy? How is this OK?
DOLEAC: It's OK and actually better than a situation without price discrimination because price discrimination allows the firm to charge different prices to different people, and more of those people who want to buy the good are able to buy it.
VANEK SMITH: So basically, there is more variety, more kinds of razors in the world - pink ones that are, you know, scented with white tea and have five blades and cost $20 and yellow BICs that cost $4 for a 12-pack. And so overall, in the world there are more kinds of razors. And those razors are also offered at a cheaper price than they would be if the market weren't segmented. You know, so overall, cheaper - some cheaper razors.
DUFFIN: For men (laughter).
VANEK SMITH: For men. Yes, cheaper razors (laughter) for men. So like, for the market as a whole, this is great. It just isn't so great if you happen to be in the pink-razor half of the economy.
DUFFIN: Right. Right. Exactly. And that is an efficient market - maximum options for all razor buyers.
VANEK SMITH: Feels, like, really unfair that we're earning - like, women earn less and pay more that - I mean, and also are, like, often valued on appearance.
VANEK SMITH: So...
DOLEAC: Which is why we're willing to pay more. But it ultimately kind of is our fault to the extent that it's our preferences...
VANEK SMITH: No. No.
DOLEAC: ...(Laughter) That dictate, you know - I mean, ultimately, like, you don't have to pay that price.
VANEK SMITH: How do you feel about women getting charged more for products?
DOLEAC: (Laughter) It's really, really irritating. But as an economist, I love that firms can do this (laughter) because it's just such a beautiful example of how markets can ultimately lead to more efficient outcomes.
DUFFIN: Jennifer says the solution is for women to stop buying pink razors and just get really diligent about researching gender price differences. And then give your business to places that don't have (laughter) gender-differentiated pricing.
VANEK SMITH: I mean, Karen, I thought about this a lot. And, you know, I was like, listen, I have loved and reported on economics for, like, more than a decade. But how could economics be celebrating this? I mean, as women, we are told, like, before we can talk, you need to look this way and buy these things in order to, you know, have a good life and succeed. And so we're all like, OK, we'll do it. Seems like a lot of stuff, but sure. OK, we'll buy nail polish and makeup and jewelry and hair clips. And - you know, and then even for the stuff that both genders are buying, we still pay more. And then, when we actually ask why, the answer is because you're enough of a sucker to pay more. But, you know, keep it up because it's great for the economy.
DUFFIN: I think the economy is a jerk.
VANEK SMITH: Yeah. Economics, we need to have a talk.
DUFFIN: And you know what? Frankly, it's economics' loss.
VANEK SMITH: But, you know, Karen, I'm - I don't know. I love economics. I've been with economics for all these years. And I just thought there's got to be another way of looking at this.
DUFFIN: You're going to give him a second chance, huh?
VANEK SMITH: I - well, you know, we have a history together. And so I started looking around. And I found a different approach. It comes from a female economist from the '30s, a contemporary and friend of John Maynard Keynes, a woman named Joan Robinson. Linda Yueh profiled John Robinson in her book, "What Would The Great Economists Do?" And Linda says Joan Robinson would have a different view of this price discrimination situation.
LINDA YUEH: If you think about markets being perfectly competitive, then you really shouldn't have price discrimination, should you? Because if you try to sell your razor for a cent more, then they'll go buy it from the next person.
DUFFIN: Linda says the market values a particular good or service a certain way. That is the perfect price. And a more expensive product should have more features. It should be qualitatively different. But in the case of the deodorant and razors that we looked at, it is clear that women are not paying more because their version of the products are better. They're paying more because of marketing.
YUEH: If it's a case of pure marketing making you feel you need to buy a certain kind of product, even though really it's not much different (laughter) than the cheaper one, I'm not sure that's economically efficient.
DUFFIN: So take the cellphone market.
VANEK SMITH: Yes.
DUFFIN: At the high end, you've got a $1,000-phone with tons of apps and features and accessories. And at the bottom of the market, there's, like, a $200 phone that does none of that. But it is way more affordable, and you can make calls with it. And this is economically efficient because all of this innovation happened because people were willing to pay more for a phone. And companies had to find reasons to charge more. They had to make it better than the $200 phone.
VANEK SMITH: But in the case of razors, there's no difference.
DUFFIN: I know.
VANEK SMITH: The difference is the heartless marketing machine that has been devouring our souls since birth, Karen Duffin. This has not created a better razor. And its economic efficiency is therefore questionable unless, you know, it creates double the enjoyment of a men's razor. But...
DUFFIN: It doesn't.
VANEK SMITH: ...I don't think so, no.
DUFFIN: No. For sure, it doesn't. Linda says Joan Robinson might say that razor makers are taking advantage of a captive market of sorts, a market that's been made captive by marketing. And in cases like these, Linda says Joan Robinson actually recommended government regulation.
YUEH: Markets left on their own without thinking about the institutions really don't work that well. And in fact, that's why (laughter) you need to have institutions that make sure that markets operate fairly.
VANEK SMITH: In fact, California, Florida and New York are some of the states that have put regulations in place that make it illegal for certain vendors, like dry cleaners and hair salons in some of the cases, to charge different prices based on gender. Razors, though, have never made the cut. I don't know, Karen. Are we just, like...
DUFFIN: I think we might have to just...
VANEK SMITH: Stop buying pink razors?
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