Of Prom Dresses and Textbooks

A few years ago, a contracts student of mine left me almost speechless when he admitted in class that he had purchased a tie from J. Press with the intent of returning it after he wore it to deliver a mock oral argument to me (as a mock Connecticut Supreme Court Justice).

I was appalled in part because the case he was arguing was centrally about promissory fraud.? The law frowns upon people who make a promise that they don’t intend to perform.? If you commit promissory fraud, you can be tagged in many states with punitive damages, and you can be prosecuted for the crime of false promise.

Here he was, making a mock argument about promissory fraud, but in real life he was skating perilously close to committing it.? Then again, I’m fairly obsessed with the topic of promissory fraud.? I tend to see it lurking where others don’t.

This story of pre-meditated return is also the answer to my earlier puzzler. Consumers of both prom dresses and textbooks will similarly buy these items with the present intention of returning them for a full refund.? Why pay for a prom dress if you can wear it once and get all your money back? Stephen (comment number 73) wins the Freakonomics swag for his excellent guess to my puzzler. He wrote that “both of these items are being purchased for an event that is both finite in duration and singular in occurrence . . . [i]t is customarily or explicitly understood that the buyer will only be permitted to return the item for a refund before the usage occurs.” Bladt (comment number 13) deserves an honorary mention for guessing that the similarity between prom dresses and textbooks is that “[t]he School Board decides the areas that both must cover.”

Local college bookstores are not just losing sales to the Internet; they also have to contend with students who place an Internet book order and then buy the book from a brick-and-mortar store, all the while planning to return it when the cheaper Internet book arrives.

Buying an item with a present intention of returning it for a full refund does not fit squarely with the elements of promissory fraud.? But it is still a species of fraud.? And you shouldn’t do it.? It’s wrong.

Many commentators are so used to thinking of textbook and prom dress sellers as the rapacious bad guys that they had trouble thinking of wrongdoing happening on the buyer’s side of the transaction.

In his heart of hearts, my tie-buying student knew that J. Press wouldn’t have wanted to sell to him if he had disclosed his true intent.? That should be a big clue that what he was doing was wrong.

Justice Scalia might have committed a different kind of return fraud in 2004 when he bought a round-trip ticket to return from the infamous duck hunting trip with Vice President Cheney.?? Justice Scalia had flown down to Louisiana on the vice president’s plane.? To get back to Washington, he “purchased (because they were the least expensive) round-trip tickets” even though he only intended to fly one way.? I worry that Justice Scalia was buying his ticket under an implicitly false pretense.? As I wrote in a New York Times op-ed:

[I]t seems fair to assume that he bought what is known as a “throw-away ticket” – something the airlines expressly prohibit. US Airways, for example, does not allow the “use of round-trip excursion fares for one-way travel,” and reserves the right to refuse to board those who try to use them and to charge them the difference between the round-trip and one-way fare.

If Scalia knew of these provisions (and that’s a big if), he was committing a kind of promissory fraud.? The airline, like the bookstore, J. Press and the dress shop, wouldn’t have wanted to sell the ticket if it had known Scalia’s undisclosed intent.

There are times, however, when a consumer can legitimately withhold information about their future intentions.? If I work hard to learn that your rutabagas are worth more in the next city than you think, it is socially productive to allow me to withhold that information (and my intention to turn around and sell your rutabagas for a higher price).? Giving me a return for my effort gives me a reward for helping to move the market price toward a more efficient level.

But the premeditated return buyer is not providing a similar social value.? In fact, the buyer has good reasons to suspect that there aren’t joint gains of trade from this temporary transaction.? This means that the seller is going to lose more than the buyer gains from the contract.? (If there were joint gains, you could try negotiating a short-term rental of the book while you wait for the Internet copy.)

One of my super-sharp students, Richard Hernandez, suggested to me that the premeditated returner is doing society a favor by putting pressure on the bookstore to change its outmoded method of selling.? He thought the store should charge a restocking fee or an outright rental fee.

But there are sound business and pedagogical reasons why we might prefer a system without restocking fees.? We might prefer a world in which students can shop for courses.? It is not wrong to buy a book and then return for a full refund if you change your mind and decide you are not going to take the class.? This is not fraudulent.? And many bookstores wouldn’t mind taking the risk of return under this circumstance.? In fact, some college book stores only let you return for free if you can show that you’ve dropped the class.? But requiring this kind of paperwork is itself a hassle which might be seen as a cost of return fraud.

The full refund policy is a kind of course-shopping insurance.??? You can try out a course – including using the textbook – for a few classes without being stuck with the class’s textbooks or restocking fees.

From this perspective, the premeditated return scam is an extreme form of adverse selection because the buyer knows that she plans to put in an insurance claim when she returns her book.? The law can and should be structured to dampen and deter this form of opportunism.


Mike B

A return is a return and costs the same whether or not the consumer had intended or return it or not. We should seek to achieve a market where all costs are transparent in the prices charged the consumer. If restocking costs are minimal then no restocking fee should be charged. If they are significant then they should be charged. Anything else is part of a tactic by the seller to bundle a restocking service with the good at issue. Assuming that restocking does impart a cost to the seller, even without this so called "fraud", buyers who do not return their good are subsidizing those that do. They are basically paying a form of mandatory insurance without the option to purchase the good in its naked form.

People who abuse these return policies are doing nothing less ethical than an investor who takes advantage of arbitrage opportunities. The more people abuse the policies the faster the policies are changed to reflect the true economic costs. The hidden subsidies and bundling will be forced into explicit prices that consumers can accept or reject at face value.

Frankly I am shocked by how lax many return policies are in cases of the buyer simply not wanting the goods. If a store is going to be completely blind to the gross inefficiency of people being able to just buy things then give them back for full refund, then the market should punish them by abusing the inefficiency until they decide to rectify the problem.

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Carlender

Why does Justice Scalia have to be aware of the provisions of the contract: http://en.wikipedia.org/wiki/Ignorantia_juris_non_excusat

frankenduf

"many commentators are so used to thinking of (college) textbook sellers as rapacious bad guys"- or, analagously, many commentators think twice 2 equals 4

Alex in Chicago

I don't think its fair to classify Prom Dresses with Textbooks. Prom dresses are usually original and have significant time put into making each one somewhat unique. Textbooks are expensive because students are held hostage by lazy professors, not because they have a high inherent value.

Idegen

I do not understand why we need to moralize this. I personally will return anything that I am not happy with or that I decide I do not need. I view this as a service that a store provides in exchange for charging higher prices, cutting other services, or to attract customers that would not otherwise shop there. If the store finds that this trade-off is not profitable, they should change the policy or find some other measure to reduce the costs such as prohibiting an excessive number of returns from a single individual.

Jimmy

I'm not sure about this. Many businesses count on the fact that consumers will be too lazy to return the product. Heck, many infomercials practically dare you to purchase with the intent to return and rely on the natural laziness of its customers to bag the profit.

I'd imagine many clothing and book stores have a similar mentality and know this is a common behavior. You might first intend to buy the book at the college book store, hoping to find a cheaper price on the internet, but decide not to deal with the hassle of returning it when you find the price difference is only $5. In other words, there's uncertainty about returning the item and works in the favor of the stores.

BenK

Throw-away tickets being 'not allowed' is simply a distortion of the market by the airlines; it does not fit into the category of obtaining a free rental, in effect, by subterfuge. The airline ends up with an empty seat which was paid for. There is no additional cost to them, perhaps besides the loss of a captive audience for their advertising. If the passenger doesn't check in, then the loss does not even include making an announcement or holding the plane until the appropriate departure time.

James Curran

The prom dress discussion reminded me of a similar exchange from my school years.

At my college, the students were required to buy their graduation gowns (which they would wear exactly once), but the faculty members , who would need (presumably an identical) one every year, had the option of renting.

I wonder

I wonder whether Alex in Chicago works in the fashion industry. Most prom dresses aren't original: most are bought from a place like David's Bridal or a big department store at the local shopping mall for less than US$ 200.

In fact, at most proms, you can find a couple of girls who are mortified to discover that they're wearing exactly the same polyester dress, from the same store.

Mantonat

I'm not sure that the tie and the return ticket are analagous from an ethical standpoint. Not using something you paid for is the exact opposite of using something and not paying for it. The airline objects because there's an empty seat on their plane that could have a passenger in it. But if you bought season tickets to a football game knowing that you would not be able to attend one game, is that fraud?

Scalia's behavior was likely only taking advantage of the pricing disparity between (generally high-priced) one-way tickets and (usually more economical) round-trip tickets. It seems more unethical to charge customers in this manner just because it suits your bottom line than it does for a customer to attempt an end-around. You paid for that ticket, skipping the return trip is no more unethical than skipping the whole trip.

Jonathan Katz

It makes sense that it is wrong to buy something with the intent of returning it (as if unused) after use. There is a grey area, however: what if one tries it, does not make any material (observable) damage or wear so that it remains salable, but finds it unsuitable for one's purpose? Unless explicitly forbidden by a plainly stated "All sales are final" policy, that is permitted.

One certainly has the right to discard a portion of one's purchase. If I keep food too long and it goes bad, or if a restaurant serving exceeds my appetite, am I required to consume it anyway? This applies to the return portion of a round-trip ticket. A good customer will cancel the return reservation so that the airline can sell it to someone else.

Jared

The other side to the OP's argument as to textbooks is that by not making the course reading lists available until it is too late to buy them anywhere other than the official university bookstore, the professors are complicit in the university's anticompetitive behavior and the students are simply reintroducing competition into the system by engaging in economically rational self-help.

David L

Ignoring for a moment the absolutist moral proclamation of "wrong," I would be interested to know how you would evaluate this example. In advance of a camping trip, I was looking for an inflatable mattress. I had already bought one that was extremely uncomfortable and had returned it. I saw one at Target that was really cheap. I knew there was a very good chance it would also be unacceptably inferior, but for the price it was worth giving it a shot. I could have paid $200 for a mattress that would have had, say, a 90% chance of being satisfactory. Instead, I paid $40 for a mattress that I estimated I would return with about 75% confidence. Not the 100% confidence that your student exhibited, but had Target known that I was reasonably sure I was going to return this mattress, they probably would not have sold it to me. Where do you draw the line?

Nicole

This is all well and good philosophically, but what about the fraud and collusion committed between the textbook companies, colleges and campus bookstores which require students to buy $150+ textbooks which have less original and quality content than a random Wikipedia article? And let's not forget a new edition each year with slightly changed page numbers, which only devalue the used market without providing any benefit to the student.

A student can choose not to go to the prom, but a student can't choose not to buy a textbook. Returning books practically (or in reality) unread when a lower price is found elsewhere is a) normal in capitalistic commerce and b) the only defense a student has against market forces designed specifically to be detrimental to the student.

John Squire

Return rights are an importnat term of the sale contract. I prefer buying consumer electronics at Costco, where they tend to be competitive, but often a few percentage points more expensive (tax excluded) than internet discounters ENTIRELY because of their robust return terms.

Clearly Costco views it the same way, as they changed the policy from "lifetime" return to "90 days without cause" on TVs and computers, which lose a good bit of value in a short amount of time (often less than 90 days).

James D

Take a look at Nordstrom. Their return policy and general willingness to work with customers' has a strong correlation to their success in my opinion. Creating an efficiency and customer-friendly return policy can be very good for business. Will people abuse it, of course; everything will be abused, but in many cases the value of loyal customers far out ways the costs of a fewer abusers.

Andrew

It seems we find ourselves at a bad equilibrium. In the textbook market for instance, it seems that the price of the return is built into the price of the purchase. Since the textbook company knows that they have only once chance to sell a book that will then either be returned or sold on a secondary market (used textbooks) they price the original copy accordingly (make it more expensive). As a consumer then, I am even more tempted to return that outrageously expensive textbook and pass it on for longer, raising the price of the original even higher.

What we need is an innovation to come into the market and radically transform the relationship. Electronic books. Textbook rentals. Something needs to come in and break up the bad equilibrium and steer the textbook and prom dress market back to a stable equilibrium.

Michael Ellis

My wife went back to grad school this year and discovered that most of her textbooks are "custom" versions. In reality, they look to be almost identical to a traditional textbook but have a cover with the professor's name and semester, i.e., "Fall 2010." No opportunity for refunds and $0 on the secondary market. And of course, no opportunity shop on Amazon by ISBN.

It would be harder to label prom dresses in this way.

Dan

I don't think that they law can be structured, in any way, to efficiently deal with this dilemma. I have to agree that the market forces should motivate/force the outdated model to do what other retailers that are being hurt by the internet to do: innovate.

What happens ANY TIME a store is being undercut based on price? They are forced to reevaluate their model and, as we have typically seen, this is typically seen as offering superior service. Why can't bookstores do this? I am not sure what that will look like as of now, but it can't be as simple as helping students identify the books -- that is the information they need to for the online marketplace for books.

It must be a two-pronged approach where the incentives to return and re-buy online are reduced, while the motivators for purchasing and keeping the books maximized. Why not allow ONLY students that bought their books at the bookstore to resell them back at the end of the semester? Why not offer insurance for damaged/stolen books? Why not offer to let students pay in installments or give other free products (or at least at a reduced price) as other retailers are forced to when trying to incentivize customers? Why not have the business school for any given school do a project that seeks to make the bookstore more competitive?

Come on campus bookstores.. put some effort in if you want to keep your competitive edge.

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JohnMcG

In these circumstance, isn't there a third way that would be mutually beneficial?

If it were possible for the student to explicitly rent the tie for the day, wouldn't that be beneficial to both the student and the renter? And if there was such a rental option in place, wouldn't that strengthen the social stigma against buying with the intent to return, thus making stringent return policies less necessary.

It seems that these purchases are exposing a gap in the offerings of the market. Perhaps it's wrong. (I recently returned a tool I only used once and did not anticpate using again. Not sure hoe wrong that was, but I would have happily rented it were that option available). But if market structures are driving immoral behavior, maybe we should look at the market.