Why Timing Changes the Meaning of a Price
The subject here is not whether a business may charge for baggage, parking, breakfast, or a reserved seat. It is how the timing of those charges changes consumer choice under drip pricing. By tracing the path from the first base price to the eventual total, we can identify the exact burdens created by a delayed disclosure—and see why a low advertised price can remain powerful even when the missing charges are eventually shown.
The price is a sequence, not just a sum
Suppose two airlines offer the same trip. One displays a base fare of $194 and charges separately for a carry-on and a reserved seat. The other displays $239 and includes those services. If the traveler wants a carry-on and a seat on both legs, the first fare adds $92 and reaches $286. The relevant comparison is therefore not $194 against $239, but $286 against $239.
That difference can be represented as a simple equation:
Total price = base price + the charges for the options the customer selects.
The equation is not the difficult part. The difficult part is that, under drip pricing, the terms on the right side become available at different points in the decision. The shopper first sees the base prices and selects an airline. Only then do the add-on screens reveal what the chosen airline charges. The total appears later, after the shopper has already acted on the first comparison.
The study by Shelle Santana, Steven K. Dallas, and Vicki G. Morwitz uses this sequence deliberately. In one condition, optional surcharge prices are displayed with the base fares before the initial choice. In the other, participants choose between the base offers first and see the surcharge prices afterward. In both conditions, participants can select add-ons, receive a total, and—apart from a study designed to isolate another mechanism—decide whether to complete the transaction or start over.
This creates four distinct moments that are easy to blur together:
- Comparison: Which option looks more attractive from the information currently displayed?
- Commitment: Which option does the shopper select before the add-on prices are fully known?
- Recalculation: What does that selected option cost after the shopper chooses the services they want?
- Revision: Is the possible saving from switching worth returning to the beginning and repeating the process?
A transparent sequence answers all four questions at roughly the same time. A drip sequence answers them in order. The distinction is important because the first answer can influence how much effort a shopper is willing to spend obtaining the later ones.
Drip pricing should also be separated from partitioned pricing. Drip pricing is defined by time: the seller advertises only part of the price and reveals additional charges as the transaction proceeds. Partitioned pricing is defined by structure: the price is divided into components, such as a room rate and a resort fee, without necessarily presenting their combined total. The components may be displayed simultaneously, or they may be spread across pages. A transaction can involve both practices, but they create different immediate problems.
A hotel comparison page that lists only a room rate uses drip pricing if the resort fee first appears after the traveler opens the hotel’s page. If that later page shows “room rate” and “resort fee” as separate lines but does not make the combined amount prominent, it also uses partitioned pricing. The first practice delays the information. The second makes the shopper combine it. When both occur, the shopper must first find the missing piece and then perform the comparison.
A mandatory fee creates another distinction. A mandatory hotel resort fee is charged whether or not a particular guest uses every amenity associated with it. The Federal Trade Commission’s economic analysis of hotel resort fees describes such fees as per-room, per-night charges that may cover services including internet access, parking, or use of a health club. The focal experiments, by contrast, mainly use optional add-ons. Participants can choose baggage, seat selection, or hotel amenities, and the definition of a financial mistake depends on what they actually choose.
The shared issue is not that mandatory and optional charges have the same meaning. It is that the consumer needs a comparable price at the point where alternatives are evaluated. A mandatory fee belongs in the price of the room for that comparison. An optional fee can remain optional, but its amount and its effect on the total should be available before the shopper decides which base offer deserves attention.
The sequence shows why a later total is not automatically equivalent to an earlier total. At the end, the shopper may possess more information. But they also face a new decision: whether to discard the work already done and reopen the comparison. The price has become part of a process with a history, not merely a number waiting to be read.
Where comparison becomes expensive
The first burden is search cost: the work required to learn what another seller charges. In a hotel search, it can mean clicking from a general listing to a hotel page, opening a price breakdown, or moving through a booking flow before the fee becomes visible. It can also mean repeating that process for every hotel under consideration. If the fee were included in the first displayed price, some of that work would not be necessary.
The second burden is cognitive cost: the effort required to understand and retain the information once it is found. A shopper may have to add a room rate to a resort fee, remember the sum, and compare it with a different hotel whose charges are presented in another format. The problem becomes harder when there are several alternatives or several components. A person who can add two numbers accurately in isolation may still make a worse choice when the same operation must be repeated across multiple offers while remembering which services each offer includes.
These costs are related but not identical. A hidden amount creates a discovery problem. A visible but separate amount creates a calculation and memory problem. A late total can create a revision problem: the shopper must decide whether to invest more time in a comparison after already selecting an option. Treating all three as simply “lack of transparency” loses the mechanism that a useful remedy must address.
Partitioned-pricing research summarized by the FTC report gives a way to understand the calculation burden. When consumers see a base price and a surcharge without a total, they can add the amounts precisely, use a shortcut, or ignore the surcharge. Each method trades accuracy against time and mental effort. Ignoring the surcharge is the cheapest cognitive strategy, but it predictably makes the base price carry too much weight. A shortcut may be directionally useful but still underestimate the total. This is why an error need not be random: the first number can serve as an anchor, and later components may receive insufficient adjustment.
Presentation can intensify that imbalance. A surcharge in smaller or paler type than the base price is less salient, but salience is not the only problem. Even when the numbers are plainly visible, a shopper who must perform the calculation for several hotels is being asked to do more than read a price. The FTC analysis therefore treats a total-first display with a later breakdown as materially different from a component list that leaves the shopper to produce the total.
The low base price has a strategic effect because it appears before these costs are incurred. It can determine which offer receives attention, which option becomes the shopper’s provisional choice, and which alternative must later justify its higher opening number. A seller does not need to conceal the final charge to benefit from the sequence. It may be enough for its offer to look inexpensive at the point where a shopper filters, ranks, or clicks.
Economic theory shows why this effect is conditional. In models with fully rational expectations and no cost to disclosure, consumers understand why a seller might omit a charge. They infer that the missing information may be unfavorable and reduce what they are willing to pay for the advertised component. Competition can then force the seller to compensate with a lower base price. Under those assumptions, withholding information does not automatically create consumer harm.
The conclusion changes when the assumptions change. Some consumers may not anticipate the existence or size of add-on fees. Others may notice the fee but fail to process it fully, underestimate the total, or find comparison costly enough to stop searching. The economic literature uses different models for these departures, and they do not all predict the same profit outcome for firms. Some allow sellers to retain part of the add-on margin; others show that competition passes the benefit of the high fee back through a lower base price while still leaving less attentive consumers worse off.
The common mechanism is not a claim that shoppers lack intelligence. It is that the price system places different information and different work on the two sides of the transaction. A consumer who knows that baggage fees exist still has to remember to incorporate them. A consumer who understands that hotels charge resort fees still has to find each amount and compare the totals. Awareness of a category of fee is not the same as having a usable, comparable price at the decision point.
Farrell’s framework, as reviewed by the FTC, adds a market consequence. If hidden or delayed fees make sellers harder to compare, consumers become less responsive to changes in the advertised price of the complete offering. That lower price sensitivity weakens the incentive to compete by cutting the price shoppers see first. A business can then have reason to advertise a low base price and recover revenue later, while a business that presents the full amount may appear expensive in the initial comparison.
The hotel setting makes this tension visible. A hotel that includes a resort fee in its advertised room rate may be easier to compare but look more expensive beside a hotel that excludes the fee. An online travel agent faces a similar concern: if competing listings show only room rates, a platform that displays complete totals may lose the click even when its underlying offers are no more expensive. The result can be a stable pattern that no single firm finds easy to change on its own.
This mechanism also explains why adding a warning such as “additional fees may apply” is not necessarily equivalent to showing the amount. A warning tells the shopper that uncertainty exists; it does not provide the number needed to rank the offers. Nor does it remove the effort of finding the fee, adding it to the base rate, and repeating the calculation elsewhere. The quality of disclosure depends on whether it supports the comparison the consumer is actually trying to make.
The same caution applies to the phrase “the total is shown before payment.” It is relevant information, but it arrives after the first choice and may arrive after the shopper has formed a preference. The next question is therefore empirical rather than definitional: when consumers receive the total and an opportunity to start over, do they revise their choice? The six studies that follow were designed to observe that transition directly.