The pricing of services in the United States is a mess. Consider these examples:
- In 1992, Congress enacted the Cable Act to rein in prices in the cable television industry. This legislation, prompted by widespread consumer dissatisfaction with price increases and poor service, gave broad regulatory powers to the Federal Communications Commission and local communities. Although the sweeping 1996 telecommunications bill phases out price regulation for cable television beyond a basic “broadcast tier,” concerns persist about whether the industry can be trusted with pricing freedom. By 1994, two years after the Cable Act had been enacted, the FCC had received 10,600 complaints dealing with cable rates.1
- In 1994, a Gallup survey of 1,000 bank customers found that 49 percent believed that bank fees were too high. Moreover, 20 percent indicated that they had changed banks recently, primarily because of poor customer service, followed closely by fees and interest rates.2
- In 1990, a Maritz Marketing Research national consumer poll indicated that 61 percent of the respondents thought the automobile insurance industry needed more regulation to ensure fair practices and prices. Subsequent research shows that many automobile insurance customers believe they are being ripped off and resent what they perceive to be price gouging and false promotional promises.3 In 1988, California voters approved the controversial Proposition 103, which regulates pricing and profits in the industry. The California Supreme Court upheld the law in 1994; the U.S. Supreme Court upheld it in 1995.
- In 1992, a Brookings Institution study, commissioned by Aetna Life & Casualty Company, concluded that hourly billing for legal services leads to unnecessary, more expensive work.4 Many corporate clients are currently fighting this practice. Companies such as Walt Disney, Citicorp, and Merck have adopted guidelines that limit hourly fees and reimbursable charges and standardize billing formats. General Motors has developed a database that tracks litigation and determines average expenses for handling different matters. GM questions law firms whose fees exceed the averages and sometimes insists that fees be reduced. Dow Chemical’s on-line computer monitoring system “looks for people billing who weren’t approved to work on the case, looks for hourly rates that weren’t consistent, and looks for duplicate billing.”5 Some companies are hiring outside auditors to monitor their legal bills for improper or inaccurate charges.