Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Why Regulate Junk Fees?
Journal of Economic Perspectives
(pp. 203–20)
(Complimentary)
Abstract
This essay examines the growing prevalence of junk fees, including mandatory back-end fees and hidden add-on charges, which obscure the true cost of goods and services. Drawing on examples from event tickets, hotels, cable bills, restaurants, and financial services, I show how these pricing practices increase search costs and equilibrium prices, distort consumer choices, and divert innovation toward exploitative rather than value-enhancing strategies. Economic theory and evidence suggest that competition and disclosure alone are often insufficient to discipline junk fees. I review recent regulatory responses, including federal and state rules that require all-in upfront pricing, and discuss their implications for consumer welfare and market efficiency. The rapid evolution of junk fee policies provides economists with rich opportunities to study their intended and unintended consequences. At its core, the case for regulating junk fees rests not on paternalism but on enhancing market functioning.Citation
Mahoney, Neale. 2025. "Why Regulate Junk Fees?" Journal of Economic Perspectives 39 (4): 203–20. DOI: 10.1257/jep.20241409Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D18 Consumer Protection
- H71 State and Local Taxation, Subsidies, and Revenue
- K22 Business and Securities Law
- L81 Retail and Wholesale Trade; e-Commerce
- L83 Sports; Gambling; Restaurants; Recreation; Tourism