Why the Cheap Haircuts?

I’ve been mystified by the abundance of beauty parlors/barbershops in Germany — and by the low prices I’ve paid for their services.

At home I pay $35 for a haircut by my wife’s hairdresser (nearly $1 per hair). Here, for an equal-quality haircut I pay $13 ($17).

Why so low a price; why so many shops?

Apparently haircuts used to be much more expensive; my Berlin colleague paid $15 (DM30) in 1994, and now he pays $8.

It used to be that every hairdressing shop required a licensed master hairdresser to supervise others. Today, licensing rules are less stringent; it’s easy to open a shop on your own, without supervision.

With the expansion of the E.U., Polish hairdressers have entered the German market, shifting the supply curve far to the right and lowering prices drastically. Not surprisingly, the effect has been bigger in Berlin (near Poland) than in Bonn (far west in Germany).

Who’s hurt by this price drop?

Polish hairdressers are better off, as are German consumers. Young German hairdressers entered the field knowing full well what the prices are, so they can’t be worse off.

The only losers are older German hairdressers, who expected high prices when they entered the field; they’ve suffered a shock to their earnings because loosened restrictions on entry into the market have reduced prices — a classic illustration of the few being hurt by increased competition, while the many gain a little.

(Hat tip: Michael Burda)