Confounding the confusopolies

A while back I wrote about Optus’s pricing structure, but the economists have already been over this ground. Scott Adams (the creator of Dilbert) apparently coined the term “confusopoly” to describe a situation where companies avoid competing on price by making their prices too confusing to compare. (I don’t have Adams’ book The Dilbert Future, so it’s conceivable that I’m repeating some of his thoughts here, doubtless with rather less satirical flair and 12 years later. Oh well.)

It’s probably important for this phenomenon to have a name, and “confusopoly” is a very intuitive choice. It would be nice to think that, given enough attention, these practices might eventually be regulated.

Special deals, discounts, options, etc. are employed not to benefit consumers but to confuse them. However, the real masterstroke of the mobile provider confusopoly, is (as I mentioned previously) their way of decoupling the money you pay from the value you get. Everyone who has perused mobile plans will be familiar with the idea of paying, for instance, $40 and getting $400 in “value”. This, with the greatest respect to anyone dazzled by such an offer, is a complete scam, and in my humble opinion should actually be illegal. The $400 is a lie – an act of creative accounting achieved simply by maintaining absurdly high prices for actual service (e.g. upwards of $1 per minute for phone calls).

Say, in this example, that this $400 of “value” entitles you to 400 minutes of calls. If you divide both the “value” ($400) and the price ($1/minute) by ten, you’ll discover that you now get the same amount of service (400 minutes), but your “value” is what you actually pay. Equally, you could multiply both by ten and get $4000 of “value” and yet still not get any additional service (because now you have $10/minute calls). Of course, powers of ten are themselves insufficiently confusing for the purposes of mobile carriers, and there would be other costs involved here, but hopefully you can see the picture. To further illustrate, if you were comparing two plans: (a) offering $100 “value” with $0.5/minute calls, and (b) offering $200 “value” with $2/minute calls, you can see that the “$100” is, overall, twice as valuable as the “$200”. If you’re not outraged by this proposition, either you’re one of the evil geniuses who invented it, or I’d suggest you need to think about it a bit more.

The fact is that “value” and price are each utterly meaningless unless you know both of them simultaneously. This is hard, for two reasons. First, the ads for such plans deliberately omit the price for calls. Usually, you’re only told about the “value”, which, as you can see above, could mean anything. You have to navigate the hideous fine print to find out how much of this “value” it takes to actually make a call.

Second, it’s well known* that the human brain can only juggle about seven distinct pieces of information (give or take) at a time. The “value” and price are really only one piece of information masquerading as two. This serves only to chew up your cognitive resources and so dramatically reduce your ability to meaningfully compare different plans using only your brain.

However, there is an important logical consequence of the confusopoly approach: the simplest pricing structure is probably also the cheapest. Confusing price structures are there solely because the company in question can’t or doesn’t want to compete on price. The absence of a confusing price structure, therefore, suggests that the company can and does want to compete on price. Though not absolutely watertight, I feel this logic is good enough to be of practical use. You should still be shopping around, but the best places to look for lowest prices are those that make it easy for you to look.

Without wanting this to turn into an ad, I have recently changed mobile providers on this basis. Virgin’s “beancounter” plan eschews the notion of “value” and simply gives you $0.1/minute calls. I’m honestly not sure if this is actually the cheapest of all plans – that’s the whole point of the confusopoly – but it’s certainly the simplest plan I’ve seen.

Virgin does also offer the usual array of confusopoly-ish plans. It’s also currently a subsidiary of my old provider Optus, so in the end I’m not really taking my business elsewhere. Yet, there is a certain peace of mind that comes with actually understanding what you’re paying for.

* This discovery was published by George Miller in 1956, in a paper entitled “The Magical Number Seven Plus or Minus Two: Some Limits on Our Capacity for Processing Information”. This includes the second best opening paragraph** of any technical paper I’ve read.

** The best opening paragraph (of any technical paper I’ve read) is that of Kruger and Dunning (1999), in which they recount the story of a bank robber who protested loudly that he “wore the juice” and should therefore have been invisible to security cameras. Certainly, it seems cognitive limits vary from person to person.