List Price = Joke Price: 4 Examples of How Original Prices Are Meaningless

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When almost no one pays full price, what does “full price” even mean? From cars to college to health care, consumers today are surrounded by huge markdowns—which, when you think about it, wouldn’t exist if goods and services weren’t marked up so high in the first place.

Why is the consumer landscape filled with prices that no one is really expected to pay? You know, the “original” or “compare to” prices, also known as “MSRPs,” which are typically listed right next to the actual purchase price. If almost no one pays a list price, isn’t it meaningless?

Not entirely, says Kit Yarrow, a consumer psychologist and occasional contributor to “People really aren’t very good at calculating the worth of a product or service,” she says. “It might seem like they should be jaded, but consumers still absolutely, positively rely on list prices to determine value.”

Marketers love to use the concept of an “original” or “suggested” price as a way to convince shoppers they’re getting a can’t-pass-up bargain. As a result, we’re surrounded by initial prices that buyer and seller alike know are unrealistic and inflated, and yet that somehow serve a purpose—as a point of comparison, or as a starting point for negotiations. Life would probably be a lot less frustrating and confusing if fake “full” prices didn’t exist in many areas, including these:

Health Care
Anyone who has ever looked closely at a bill from a hospital knows that the health care pricing systems in the U.S. are completely absurd. In Steven Brill’s recent TIME cover story about overinflated medical bills and why health care in general has become so expensive, many hospital representatives admitted that the initial prices listed on bills—decreed by someone or something called the “chargemaster”—are basically meaningless. “Those are not our real rates,” one hospital spokesperson told Brill, flatly, when asked about prices listed on a bill. “I’m not sure why you care.”

(MORE: Bitter Pill: Why Medical Bills Are Killing Us)

The justification for such as system seems to be that it allows hospitals to use a crazily inflated price as a starting point for negotiations with insurers—and also for patients who have no insurance. The argument is also made that hospitals want to be able to charge wealthy foreigners top dollar for services, with the idea that these easy profits will be used to help provide subsidized services for the poor.

The sad truth, detailed in the story by Brill, is this:

I quickly found that although every hospital has a chargemaster, officials treat it as if it were an eccentric uncle living in the attic. Whenever I asked, they deflected all conversation away from it. They even argued that it is irrelevant. I soon found that they have good reason to hope that outsiders pay no attention to the chargemaster or the process that produces it. For there seems to be no process, no rationale, behind the core document that is the basis for hundreds of billions of dollars in health care bills.

The new-car purchase is probably the most obvious, well-established example of how the “sticker price” isn’t a real price. Due to auto dealership incentives and rebates, leasing and financing deals, and old-fashioned haggling, virtually no one pays the price listed on a new vehicle.

(MORE: How Buying a Car Is Becoming Less Awful — Or at Least Less Time Consuming)

Despite the fact that consumers hate that’s it’s a hassle just to get to a final price for a new car, the system persists because, well, it just always has. Most dealerships apparently think that it’s still in their best interests to operate this way, though some admit that the process is designed for idiots.

For decades, we’ve watched in horror as tuition and fees have soared at public and private colleges alike. Costs at state schools have increased by 40% or more overnight, while dozens of private universities have crossed over the $50K-per-year barrier.

At the same time that students and their families are instructed to freak out due to skyrocketing costs, they’re also told that it’s wise to ignore the numbers when navigating the college search. Why? Because relatively few students pay full price.

Studies have shown that thanks mostly to scholarships and financial aid private college students get a 33% discount, on average, off the full price of tuition. Many of the public and private institutions recently named as “Best Value” colleges made it to the list not because of low starting prices—but because the widespread availability of discounts brings costs down. Many students get 40% or 50% off the college list price, once grants, scholarships, and aid are factored in.

(MORE: How a $54K-Per-Year School Is Deemed a ‘Best Value College’)

Think about how many easy ways shoppers can “save” on everyday purchases—store reward programs, online coupon codes, and old-fashioned weekly sales to name three. It seems as if every price tag must point out a “Compare to” or “Original” price to demonstrate the discount being offered, and every receipt must proudly tell the customer “How Much You Saved.”

First off, this has been pointed out by loads of personal finance wonks, but it bears repeating once more: When you’re spending money, you’re not saving money. That goes even when something is “on sale.”

Secondly, the ubiquity of markdowns and discounts via sales, loyalty programs, and such has brought to light something of an existential bargain-shopper conundrum: When everything is always “on sale,” what exactly is a sale? Do the terms “full price,” “original price,” “compare-to price,” and “manufacturer’s suggested retail price” mean much of anything? Do they have any relationship to genuinely good prices?

About a year ago, JCPenney CEO Ron Johnson came clean about how the store’s original prices were fake prices cooked up mainly to make the inevitable markdowns seem more impressive and tempting to shoppers. The strategy is known as “price anchoring,” and it’s standard practice at most stores. Johnson said that perhaps 1% of all JCPenney merchandise was sold at full price—the rest was bought “on sale.” The plan was to replace fake prices with a new, “fair and square” system that got rid of pricing games involving coupons and sales.

(MORE: Turns Out You Won’t Get Rich Hunting Pythons in Florida)

While the new system sounded great to many consumer advocates, it proved to be a failure with shoppers, and JCP scrapped the idea. The result is shoppers should expect “sales”—and artificially inflated “original” or “suggested retail” prices—to keep appearing at JCPenney and the majority of stores out there.


The short version of this story, at least with regard to retail and auto pricing, is that the systems persist because customers are so accustomed to them that they automatically distrust any more efficient system. Saturn started as an auto brand that offered a somewhat premium car at a no-haggle price. It was their entire business model. They had to scrap it within the first five years. If you went to a car lot and the salesman told you that he was going to cut all the bull and that the car was a 2% profit based on any amount of internet research you could do, chances are you wouldn't buy it. Even if your research bore him out. Better for him then to mark it up 20%, cut it 15%, and tell you you "saved thousands." It's what you want to hear. Even though you probably paid 3% more.


True, if you're spending money you're not saving money, but that doesn't mean that you have to pay top dollar for necessities. We all have to eat. If one store sells a half dozen bagels for a dollar less than another store, I'm going to buy them there. I'm not making any special trips, but with 2 supermarkets in the area, I know which store is selling meat for less than the other and which one is selling canned goods for less. I can make 2 separate shopping lists and over the course of the month, save enough money, by not overpaying, to pay for a tank of gas. If the extra hour or two I spent splitting my shopping up nets me $60 in "free" gasoline, I'll take it.


@RodVenger The recent "Extreme Couponing" craze began to shed some light on just how much more than we have to we pay for even staples. My wife regularly would accumulate coupons, discounts, reward points, cash / gift-card backs, etc that would result in a 40-50+% discount on groceries at the local supermarket that already had - by far - the lowest prices of any of its competitors. 

Denesius 1 Like

I'm surprised the article left off the most blatant use of the artificial 'retail price': to devalue a warranty.  Perfect example is Sears perpetually promoted Diehard batteries. The dealers make a big deal about the warranty, but leave off the fact that it's pro-rated, and based on the retail list price, not the everyday sale price. So if it goes bad in 6 months instead of 48, you pay 1/8 of the retail price of a new battery, which is about 2/3 of the original purchase price.  It's a scam by any other name.


The beauty of capitalism and free enterprise. Businesses can charge whatever they please and if you don't like it, go somewhere else. Obviously this breaks down a bit with healthcare (can you really just get up and go somewhere else? rarely), but in the other examples it really does apply. Don't want to pay a ridiculous amount for a college degree? Community colleges are far cheaper. Not willing to pay the list price on a new car? Haggle. Still not satisfied? Buy from somewhere else. 

joeaverager 2 Like

@ZacPetit Yes - but.... Community colleges don't have the same resume clout as private colleges beyond a certain point. A four year state university degree goes further or - like many folks do around here - take two years at the community college and finish up at a state four year school for some savings on tuition. 

At the same time - kids can help themselves out by living like a pauper during their college years. I've met so many college kids and their parents who feel they need to spend alot of money on new computers (vs used), tablets, elaborate cellphones, new wardrobes, all new dorm room decor (fridge, microwave, elaborate coffee makers), all topped off with a pretty decent car that is "cool". 

Me? I worked my way through and it took a long time. Got married, had child #1 along way and bought a house b/c we planned to stay here - which we did. The mortgage payment was just about $75 more than the rent we were paying previously on a shabby apartment. And the house (1100 sq ft) was really a nice little, older house on a dead end. 

UleNotknow 1 Like

... for only $19.99. But wait - if you order in the next five minutes, we'll double... Same-o.

droiddest 2 Like

Black Friday is the WORST for this type of stuff. Save 75% of that $150 sweatshirt! Riiiiight.....

hanchueh 1 Like

Meaningless article comparing apples to oranges. What is the biggest difference between list prices of those mentioned in this article and in healthcare? None of those items he mentioned would have a list price that is 1000% to 20000% of the actual cost of the item. Hospitals regularly bills Tylenol pills for $2.99 when you can buy 100 of them for $1.49. That is a 20000% increase. Do you see Honda Accords listed for millions?

Seola1 1 Like

@hanchueh The article isn't comparing the scope of only X% markups.  The headlines is how list prices are meaningless.  Just because it's worse in a hospital doesn't mean it doesn't exist elsewhere.


@Seola1 @hanchueh And it's meaningless to compare 10000% medical bills to cars where the list price is only 110% to 150% of actual price. Even college tuition list price is only 150% of actual price. Do you notice that these things are still within the same magnitude? When one thing is out of control at 10000%, you still list 150% things and call the 10000% meaningless?


@Seola1 @hanchueh There is still a huge difference between healthcare and the other 3 in terms of magnitude. By hiding one out-of-control thing in a list of moderate things and calling it a list of meaningless, it downplays the outrageous prices that hospitals charge compared to other things. Yes, they all have the same idea of charging high to those who would pay high, but you can see how one is on a totally different magnitude than the other three.


@hanchueh You seem to be under the impression that someone is comparing the two though.  Nowhere is anyone saying "this scenario is worse than that one".  Do you not notice that the same problem can happen in two totally different places?  No one has even pretended that the hospitals aren't the worst offenders... in fact the writer of this article lists the very huge markups on hospital bills.  It's like saying the person who fell down the stairs didn't really, because someone else fell down the stairs and broke their neck.

Seola1 1 Like

I'm surprised the Penney's marketing was a failure.  Honestly, I saw way more people in there the several times I went during their new setup than I had ever before.  I hadn't been since before Christmas but if they've scrapped it, I might go and peruse to see if there's still people in there now.

whill0800 2 Like

I have no connection with hospitals or any other part of what I call the medical industry, which might be compared to the military-industrial complex and the many tentacles of both industries. That being said, Mr. Brill did not pay much attention to the huge overhead costs that hospitals must cover. The biggest single cost is overhead, and the biggest part of that cost is personnel. It takes thousands of employees, many of them highly paid, to keep a major hospital running efficiently 24-7, 365 days a year. In addition, hospitals must comply with countless laws, rules, regulations and inspections, not to speak of the exposure they have to malpractice suits and maintenance of the physical plant.  I have a feeling that there are "bean counters" in the works when they compile charge lists. 


@whill0800 Actually, while the author makes some concessions for overhead, a lot of times, you have separate bills for doctors who are contracted, the radiology department which is contracted, etc. etc.  A couple years ago, when I went in for not breathing, I had 5 separate bills from the visit.  Radiology, pulminology, ER doctor, ER charges from the hospital, and pharmacy.  They all start with fees just for showing up as "hospital visit" for anywhere from $49-$299 dollars just for walking in.  I was charged $110 for a bottle of antiseptic to clean my room after!  And this was one of the top hospitals in the region.  I had to actually go across all the bills at the same time to see how much was double charged, even though I had insurance.  About $5,000 of a $14,000 was completely fake and/or double charged across the 5 bills.


I know that it is a long article, but if you read it you will find that he accounted for all overahead (all salaries including cooks, janitors, etc; all maintenance; all doctors, nurses, administrative; all of the effects of laws; malpractice; everything) and his figures still showed an 1100% markup (11 times the actual cost).  Also, he primarily studied "non-profit" hospitals - there is no reason at all not to assume the same at the "for profit" hospitals.  It is an excellent article, and, if you are able to wade all of the way through it, you will find that it is complete in all details.  It explains why American health care continues to rise even when the economy was contracting and  it should have contracted as a result if supply and demand was having an effect.  It is clear that our health care system is not ruled by supply and demand but follows the rules of monopoly, and, no, I don't mean the game.  It woud pay to read the article - it is that good.

MomWizCom 1 Like

"thanks mostly to scholarships and financial aid private college students get a 33% discount, on average, off the full price of tuition." Except that "financial aid" often includes student loans, which have to be paid back with interest under most contracts.  You can't count that as a discount!

pcurrey69 2 Like

List prices can REALLY be jokes... or flat out INSULTS.  Last year (before I broke down and got all new tools) I was in the middle of a repair job on my truck and found I was missing ONE socket I HAD to have to finish taking the dash apart (my 10mm was gone and 1/2 wouldn't work).  I ran to AutoZone and grabbed a cheap, small socket set that included what I needed, not caring about price due to time issues.  It was only $8.99 and was happy about the price.

A certain major discount store had the exact same socket set when I visited a week or two later - not similar, the same in every aspect - in their store with a "List Price" of $89.99 and had it "Marked Down" as a bargain for either $19.99 or $29.99 (KNOW it was one or the other).

(oddly enough, that cheap set I got and expected to break on me is still going strong.. and it's been put through some tough work without any broken sockets or a stripped ratchet; hasn't even started to rust.)

Fillybuster 1 Like

@pcurrey69 You speak the truth. This has happened to everyone. 

The crime (it oughta be) is when this over-pricing occurs in the service industry from auto repair services to medical services. As a senior there are many things I can no longer do. Further as technology makes advances in many fields, it is increasing the number of fields where even a skilled consumer has little chance of knowing enough to make a truly informed decision. This is especially true in services pricing.

This article and the article on medical pricing are good reporting. Thank you TIME!


That high price on your medical bill is the price insurance companies force your doctor and hospitals to charge non the insured. If they do not charge the high price for non insured, the insurance company will not let them be a provider of services to those who have insurance with them. 


@PaulChapin Simply not true. Cash payers get big discounts at doctors. Hospitals will cut the bill to 20% . From over $900 to just over 100. They do it all the time. 

MichaelJohnAnthony 1 Like

@krozareq @PaulChapin 

You are both right. Doctors are contractually prohibited from charging cash patients different amounts, but they do it anyway.

Michael Anthony, JEMS Medical Services, Inc. (Billing & Consulting)


Go for the real sales, the clearance rack! That's why being a man is far superior to a woman or a fairy. Seriously, I could wear a shirt that says: "suck my dlck" and it will work. That's too fancy int he construction business though, should only go with faded beer logo shirts for that.


This author hasn't tried to buy a firearm recently.


...... to screw others is legal in US.

erin111 1 Like

Nobody noticed that this is just cheating?! That it is dishonest?! Ruthless people take an advantage of those who are not experts and we can NOT be experts in everything. So we either fall victim or are becoming permanently suspicious. What a screwed up society!!!!!


Yet consumers want to be lied to. people like feeling better about themselves even at the expense of it being complete BS. See how successful you are being the honest restaurant server who shows people their real side versus the smiling idiot that people will throw tips at.

This starts at the base of society. I don't know why people think the mass of people in a society are overall good. They're a destructive animal

RichardSRussell 2 Like

Of course, some people DO pay the asking price. These are almost invariably the ones least able to afford it — immigrants, illiterates, the terminally shy, slow learners, those too busy trying to get to their 2nd job to afford the time, and so on. Capitalism! Wotta system!