Why that Hotel Shop Undershirt Is So Expensive

“What do you need?”

“Undershirts.” I was in a hotel gift shop and not optimistic.

“Right this way.”

I was surprised. I guess they have undershirts after all, I thought. I had my usual rhapsodic feelings about how people who don’t necessarily care about me are nonetheless able to care for me by having shirts when and where I might need them. I have, after all, bought belts, sunglasses, shoes, suits, shirts, and all sorts of other things on the road when I’ve opened my suitcase and discovered (to my horror) that I’ve forgotten something. 

Then I looked at the price and thought again about just how badly I needed shirts. Another shirt certainly would’ve been nice to have, but not at that price.

My natural impulse was to feel frustrated and maybe even a little offended. After all, I was but a hapless traveler who wanted an undershirt. I thought the people at the little shop were there for me, but actually, they were exploiting me in my time of need.

Then I overcame my first wave of emotion and started thinking about it a little bit more carefully. Did I really need a shirt? Or did I just want a shirt? I was flying home early the next morning, so I could’ve made do with what was in my suitcase. Perhaps I wouldn’t have been as comfortable, but I would’ve been okay (narrator: He was okay).

The price played an indispensable and absolutely essential role in my undershirt mini-adventure. The people who owned the shop had undershirts, dress shirts, socks, underwear, ties, belts, and everything else that people like me are prone to forget. The price was crucial to an exercise in economic triage: it forced me to ask whether I really wanted the shirts now, or if I would be willing to wait for perhaps a better price somewhere else and leave the shirts for someone who might want them even more dearly than I did.

At first glance, it might seem inefficient for the shirts to just be sitting there instead of being worn. Borrowing from W. H. Hutt’s The Theory of Idle Resources, just because the shirts aren’t being worn right now doesn’t mean there is any waste. The shirts are specialized in availability, with the price telling people to think hard about whether they really need shirts right now or whether they could do without, at least for the short term. The shirts stop specializing in availability the moment someone who is really in a bind finds himself in need of men’s undershirts at a hotel in Fort Lauderdale, Florida, on very short notice.

A price might look like an arbitrary imposition, a needless barrier between me and what I need. “Need,” however, is pretty malleable, and people are pretty creative. As Julian Simon argued, people come up with all sorts of ingenious ways to solve the problems they face. It can be something as mundane as deciding to go without a new undershirt for a few hours or something as complex as reimagining an entire production-and-operations process in response to higher prices of fuel and raw materials.

The “sharing economy” is an example, and here I borrow from Michael Munger’s Tomorrow 3.0. Transaction costs — which are the costs of finding people with whom to trade (triangulation), processing payments (transfer), and verifying the integrity of what is being traded (trust) — have, until relatively recently, eaten the world. There was probably someone at the hotel with a shirt that would have fit me who might have been willing to lend or rent me a shirt. We don’t bother with that now because the cost of arranging the exchange is simply too high.

“They’re still cheaper at Walmart and Target. You’re getting ripped off.” Maybe, and Walmart and Target have bailed out this absentminded professor more times than I care to admit. The people running the shop know more about what F. A. Hayek called “the particular circumstances of time and place,” however. Shirts at Walmart and Target are cheap because they sell in such high volume in stores sitting on acres of cheap suburban land. 

By contrast, the little shop at the hotel is on an expensive beachfront where shelf space is a lot more valuable. Think about all the things that could be on the shelves other than shirts. Knickknacks. Breath mints. Candy. Aspirin. Bodice-ripper novels. All hot sellers at a beachfront hotel, I imagine, but the people calling the shots are the ones with the sales data I don’t have.

Compared to a lot of the alternatives, plain white t-shirts are bulky and low value. They probably don’t sell as briskly as a lot of other things. Having your money tied up in inventory is expensive — it could be earning interest, after all — and the shopkeepers aren’t going to keep the shirts on hand unless they’re compensated for this, too. It’s only worth the store’s while to stock the shirts if they have a pretty good idea that they’ll have a steady-enough stream of conventioneers, wedding guests, and others who want t-shirts (or ties, or socks, or underwear, or dress shirts) in a pinch. Otherwise, they could (and would) stock other stuff.

As Adam Smith explained so long ago, commerce is persuasion. I paraphrase: every bid and every ask in a free market is an act of oratory whereby one says to the other, “Give me that which I want, and I will give you this which you want.” At the beachfront hotel shop, that’s what the shopkeepers were saying by putting a pack of undershirts on the shelf and asking what they did. In this case, I said, “No, thank you” — and I left the shirts there for someone who wants them more than me.

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