At David Friedman’s blog, he asks, why are glass not bought online so expensive? My response is below his post, which is quoted here.
The Price of Eyeglasses
I recently bought two pair of prescription glasses from an online source that had been recommended to me. The total price, shipping included, was about $40. I estimate that buying two pair at one of the less expensive local sources, such as Costco, would have cost at least five times as much, perhaps more.
This raises an obvious puzzle–why are they so much more expensive bought in the usual way. If Zenni Optical can sell them online for under $20/pair, why doesn’t someone set up selling them for, say, $40/pair in the mall and make a fortune on volume? Three possibilities occur to me.
1. The online glasses are of inferior quality. So far as I can tell–I’m wearing one of the pairs at the moment–that is not the case.
2. Economics is wrong; markets don’t work. Consumers are irrational, or so badly informed that they wouldn’t notice if one seller cost less than half as much as another, or … . This does not strike me as plausible.
3. Competition among ordinary sellers is constrained by regulatory rules, probably at the state level. I know there is some regulation of the industry but don’t know the details. Given that I am both a libertarian and an economist this strikes me as the most plausible explanation.
Does anyone have more information on the subject?
Well David, since you asked, this is my theory: prescription eyewear was originally sold by mostly optometrist owned-and-operated shops. The O.D. was highly trained, had significant school debt, and high salary expectations. Beyond this, s/he had a relatively small base of customers. After all, how many people can an optometrist even see in a day? Maybe 10 at most?
These two key factors–high earnings expectations and a small customer base–resulted in a predictable outcome: a need to charge high prices for prescription glasses. This was then reinforced by the emergent eye insurance industry, which distributed the $400 glasses and $150 exam into 12 neat, monthly insurance premiums covered by the patient’s employer.
This went on for decades and decades. Local eye doctors held all of the expertise on eyesight and charged an amount reflective of their expertise, their brick and mortar presence and staff time, and their relatively low-volume of sales. A pair of glasses, therefore, would often cost well over $300.
Then came department stores. These stores brought a revolution to commodity shopping and drove smaller, low-volume mom & pops out of business. Their reach became ever more broad and eventually commoditized once specialized service-based industries such as hair-dressing and, yes, optometry.
But the big box retailers did not base their price on the true cost of providing a pair of eyeglasses. Instead, the cost was based on what consumers were “used to” paying, based on their experience at the local optometrist. The big box chopped 30% or 40% off this price and offered glasses that were priced very competitively in relation to the local ecomony, but did still not reflect the true perfect-competition price of eyewear.
Fast forward a few years. The internet democratizes information, levels the playing field, and allows for some real competition in the eyewear industry. Beyond this, companies could reach a worldwide customer base and could rely on an eye examination done elsewhere. Technology smoothed the process of providing a custom product to hundreds of thousands of consumers, and the once specialized, individualized experience of buying glasses from an individual, highly-paid eye doctor, became simply a matter of filling an order.
That, I believe, is why glasses are so expensive when bought in the usual way.