Thursday, April 12, 2007

The Price of Eyeglasses

I recently bought two pair of prescription glasses from an online source that had been recommended to me. The total price, shipping included, was about $40. I estimate that buying two pair at one of the less expensive local sources, such as Costco, would have cost at least five times as much, perhaps more.

This raises an obvious puzzle--why are they so much more expensive bought in the usual way. If Zenni Optical can sell them online for under $20/pair, why doesn't someone set up selling them for, say, $40/pair in the mall and make a fortune on volume? Three possibilities occur to me.

1. The online glasses are of inferior quality. So far as I can tell--I'm wearing one of the pairs at the moment--that is not the case.

2. Economics is wrong; markets don't work. Consumers are irrational, or so badly informed that they wouldn't notice if one seller cost less than half as much as another, or ... . This does not strike me as plausible.

3. Competition among ordinary sellers is constrained by regulatory rules, probably at the state level. I know there is some regulation of the industry but don't know the details. Given that I am both a libertarian and an economist this strikes me as the most plausible explanation.

Does anyone have more information on the subject?

27 Comments:

At 8:27 PM, April 12, 2007, Blogger Phil Birnbaum said...

I bought bifocals last year, and found they didn't work for me. The optician let me bring them back, and, at no extra cost, substituted two sets of glasses (one regular, and one for reading).

The returned lenses were $375 -- I assume the optician had to throw them away or donate them somewhere.

So it seems to me that at least part of the difference is the return privilege. Of course, if the $375 lenses actually cost the optician only $20, that undermines the argument somewhat.

 
At 9:54 PM, April 12, 2007, Blogger Joe Bingham said...

Could it be that we're paying drastically more for the convenience and security of trying the glasses on? I'd hazard a guess that 50% of the cause is regulation and taxation and 50% is a surprisingly significant preference for (a) security of trying them on and (b) avoiding hassle by verifying quality, fit, etc. with a physical purchase. Maybe also (c) presumption of quality that comes with name-brand association?

Also, people usually buy glasses when they get a prescription. Might contribute to the the convenience bit of the equation.

Either way, I need glasses, and thanks to this blog entry, I'll be buying them online. Once again, I owe you one, Mr. Friedman. (I owe you even more for the help your price theory textbook is giving me in explaining the economic perspective in a presentation Monday night.)

 
At 10:14 PM, April 12, 2007, Blogger Gabriel Mihalache said...

Start arbitrating! (tm)

 
At 6:38 AM, April 13, 2007, Anonymous Perry E. Metzger said...

I'm sure there are specific reasons that this particular market is inefficient at the moment, but I find the specifics somewhat uninteresting. There is a general principle here I find far more interesting.

Markets are, on average, efficient. However, one must emphasize that in any process this complicated, statistics come into play. Statistically speaking, it would be very surprising if some markets weren't very inefficient for some periods of time.

Often friends will point out to me that a particular market is inefficient and ask "how can this be if your position on the way economies work is correct". What they don't point out at the same time is the fact that so many other markets are ridiculously efficient. The number that operate inefficiently tends to be small, but I doubt any action can eliminate them.

I suspect this precisely because of the efficient market hypothesis. Why? Because perfect efficiency would imply that everyone was spending enormous amounts of time researching each market they participate in, and that would leave them less time for doing other things. You should expect not perfect efficiency but rather efficiency commensurate with with the cost of achieving said efficiency.

Right now, most people "know" that the "right" way to buy eyeglasses is to go to a local store. Doing something unusual has costs -- what if you bought glasses online and found that the experience was horrible? I suspect that, as certain pioneers try out the more efficient method and find it works and spread the information in society, the knowledge that you can buy glasses online without particular risk will spread, and the market will shift. For the moment, I think the average person is correctly assessing that the potential loss (in time and money) of trying out something unusual is larger than the the extra money they would save up front, and they are implicitly waiting for other people to test out such things for them so they can benefit from their experience and have a smaller potential risk.

This reminds me of an irony in the "consumer reporting" beat in the average local news outlet. Often, a reporter will discover some sort of market inefficiency or fraud. We can assume in a large economy that there must of necessity be some economic segments that are not efficient. My reaction on hearing such a report is usually "ah, the reporter has now revealed this to large numbers of people and the market will now fix the problem. The reporter has provided value to the readers/viewers by spreading information and thus earned their salary." However, the reporter's reaction is usually "and there ought to be a law!", even though the reporter's own actions in spreading the information are far more effective than any regulatory action could be in altering the dynamics of that particular segment of the marketplace.

 
At 8:26 AM, April 13, 2007, Anonymous bbartlog said...

Two things occur to me: first, the eyeglass business is a low volume one, which means that if I have to maintain a storefront I may well need an enormous markup to cover my fixed costs. Unless or until everyone buys glasses online, B&M stores will continue to exist and be vastly more expensive. Perhaps the expense gap will even widen up until the point where they go out of business.
The second thing is that here in PA at least there has indeed been regulation: I believe the law says that the store isn't allowed to sell you glasses *unless* you undergo an eye exam. Supposedly of course to validate the accuracy of your prescription, but the net effect is that I believe each store has to employ an opthalmologist on the premises, which is not cheap.

 
At 9:22 AM, April 13, 2007, Blogger markm said...

A local shop here has a contract with my employer to sell prescription safety glasses (for about 150 employees) at less than half their normal price - but $64 for a basic pair of glasses is still far above the web store's price. (The examination, bifocals, plastic lenses, etc., are all extra cost paid by the employee.)

Brick and mortar stores do offer some services a web store cannot. One is eye exams, but they charge about $80 for that, which seems to me to be a fair price. (Contra bbart, the opthalmologists in the local stores seem to always have someone in the waiting room and independently of the store they should be doing as well as an MD that charges similarly for an office visit - and this is in a county with a total population of only 25,000.)

The other services are free: fitting and adjusting the glasses and even small repairs, but I just don't see those as costing over $100/pair over and above the cost of the glasses. Also, these are things that many people can do for themselves, often more easily than getting to the store while it's open. I certainly do.

This is the year to replace my glasses, so I think I'll get the eye exam and the safety glasses for work (which only cost me the premium for bifocals) from this local shop and try Zenni for the other pair.

 
At 9:34 AM, April 13, 2007, Anonymous Douglas Knight said...

I would try WalMart. If they don't sell glasses, that suggests a regulatory obstruction. If they are full price, it suggests that markets on the ground are competitive, although it doesn't explain whether the high price is regulation or inventory. I predict $50/pair.

bbartlog: in PA you can take a prescription from one ophthalmologist to another store. The regulation shouldn't cause the market to be structured any differently than the market for prescription drugs.

 
At 10:01 AM, April 13, 2007, Anonymous Legislator said...

CHAPTER 5.4. PRESCRIPTION LENSES ............................... 2540-2545
CHAPTER 5.45. NONRESIDENT CONTACT LENS SELLERS .............. 2546-2546.10
CHAPTER 5.5. REGISTERED DISPENSING OPTICIANS
Article 1. General Provisions ................................. 2550-2559

Article 1.5. Spectacle Lens Dispensing .................... 2559.1-2559.6
Article 2. Contact Lens Dispensing .......................... 2560-2564.6
Article 3. Fiscal Provisions .................................. 2565-2568
Article 4. Review ................................................ 2569
CHAPTER 7. OPTOMETRY
Article 1. General Provisions ................................. 3000-3006

Article 2. Administration ................................... 3010.1-3028
Article 3. Admission to Practice .............................. 3040-3060
Article 4. Registration ....................................... 3070-3078
Article 5. Revocation and Suspension .......................... 3090-3111
Article 6. Offenses Against the Chapter ....................... 3120-3137

Article 7. Revenue .......................................... 3145-3152.5
Article 8. Optometric Corporations ............................ 3160-3167

 
At 2:11 PM, April 13, 2007, Blogger David Friedman said...

"Legislator's" links don't work, at least on my machine, but searching for one of his titles I found a webbed copy of the relevant regulations at:

http://www.optometry.ca.gov/laws_regs/2006lawbook.pdf

It's several hundred pages long, but the relevant part appears to be that one cannot sell eyeglasses unless the person doing the fitting is a "registered spectacle lens dispenser." In order to be such, one must provide proof of passing the examination of the American Board of Opticianry" or any successor organization thereto. Or, if the California authorities decide that exam isn't suitable, they can set their own.

So the bottom line is that the legal institutions exist by which the profession can restrict entry, which provides at least a possible explanation of why eyeglasses in California cost five or ten times what they cost online.

 
At 7:24 PM, April 13, 2007, Anonymous Anonymous said...

I'd add information assymettry to the list.

Generic drugs cost ~10x at retail stores as compared to 'big box' stores. If people knew that, they'd surely jump the hoop of getting a membership, because the cost would normally be recouped the first or second visit.

I have to assume the same thing happens with personal optics. (Said as someone who spent nearly $2/day on glasses and contacts for the assumed year for which they'll last.)

 
At 10:44 PM, April 13, 2007, Anonymous Anonymous said...

"Economics is wrong; markets don't work. Consumers are irrational, or so badly informed that they wouldn't notice if one seller cost less than half as much as another, or ... . This does not strike me as plausible."

While you're obviously exaggerating somewhat, don't dismiss this possibility out of hand. From another libertarian blog I enjoy:

"This morning I glanced down the new international aisles and saw that there was a section for herbs and spices. Could the vast price discrepancies between international spices and domestic spices exist within the same store?

I checked. Indeed they can. I didn't have a pen and paper handy, or I would have written down more examples. But the one spice I checked was ground nutmeg. In the international aisle, Shoppers was selling a 1.5-ounce jar of ground nutmeg for $1.39. I mosied on over to the spice section in the regular part of the store. Sure enough. A 1.8 ounce jar went for $6.59! Maybe I'll go back and check, but I would guess there are similar discrepancies with other herbs and spices."
(http://www.theagitator.com/archives/2007_03.php)

As was explained to Mr. Balko, producers are taking advantage of the fact that most consumers do not comparison shop on items they purchase only very occasionally (like nutmeg), esp. if it only costs a few dollars anyway. The exception being certain immigrants, who have lower incomes and use the spice much more often, hence the price differential.

I don't dismiss the possibility of regulation raising the price of glasses (I still remember [i]Williamson[/i] from my law school days), but the existence of large price differentials for the same product and the lack of an arbitrage market is hardly a rare occurrence.

 
At 3:53 PM, May 02, 2007, Blogger blake41 said...

I just bought some of these and they are awesome. Thanks for saving me hundreds of dollars.

 
At 11:17 AM, June 18, 2007, Blogger Richard said...

I bought a replacement pair for a high-priced that I lost a week ago. The ratio of the price I paid to the internet price using the website David Friedman recommended as on the order of 20 to 1 and the glasses seem as good. What an arbitrage? Is this price reduction going to be reflected in the CPI?

 
At 2:01 AM, August 08, 2007, Anonymous Anonymous said...

A lot of solid ideas here. I work for one of the larger online eyeglasses retailers (eyebuydirect.com) and would like to add my two cents.

Explanations vary as to why the high prices: highly fragmented industry, quasi-monopoly on this industry (see Luxottica), high costs of optometrist degrees and equipment, high overhead costs of the typical brick&mortar, etc. I doubt the effect of state/fed regulations have a dramatic effect on the price.

For whatever reasons, we as consumers have become used to paying an average of $218 (frames $117, lenses $101). Until the advent of online eyeglasses retailer we had NO CHOICE but to buy from our optometrist, LensCrafters, etc.

Today we do have a choice but those entrenched players in the industry are doing all that they can, for obvious reasons, to stifle the online eyeglasses retailers. It was hard enough when in 1992 optometrists became required by law (FTC 456.2)to give customers a copy of their prescription following an eye exam. When this information regarding the true cost of eyeglasses spreads through society, there will be serious repercussions for the traditional vendors and new value-add services must be created.

In terms of risk, most of the online eyeglasses retailers offer some kind of satisfaction guarantee so that if you're not satisfied, you get all or most of your money back. But it's been my experience that once a customer buys their first pair from us, they're hooked and converted into a believer, i.e. "I will never buy offline again." In other words, the massive savings from buying online eclipses any potential risk. In our case, the lack of "touch and feel" factor is offset by our EyeTry software that allows the user to virtually try on any of our hundreds of frames, and then share these different 'looks' with friends/family via email. This allows for something new: receiving feedback from many people whose opinions you trust whereas before you might go to the eyeglasses shop solo or with just one other person.

I predict that within 5 years eyeglasses in the US market will become more of a fashion accessory. Afterall, just like shirts and pants and shoes, why wear one pair for all of life's occasions when you can own many pairs for the same price as what you used to pay? ESPECIALLY if the quality of frames is identical and the prescription spot-on accurate...

The Internet has leveled the playing field and now its only a matter of time before eyeglasses consumer behavior shifts en masse.

If you have any questions feel free to email me: sina at eye buy direct dot com

 
At 2:17 PM, November 09, 2007, Blogger Adam said...

I've become so interested in this topic that I've devoted a blog to it. This is my theory: prescription eyewear was originally sold by mostly optometrist owned-and-operated shops. The O.D. was highly trained, had significant school debt, and high salary expectations. Beyond this, s/he had a relatively small base of customers. After all, how many people can an optometrist even see in a day? Maybe 10 at most?

These two key factors--high earnings expectations and a small customer base--resulted in a predictable outcome: a need to charge high prices for prescription glasses. This was then reinforced by the emergent eye insurance industry, which distributed the $400 glasses and $150 exam into 12 neat, monthly insurance premiums covered by the patient's employer.

This went on for decades and decades. Local eye doctors held all of the expertise on eyesight and charged an amount reflective of their expertise, their brick and mortar presence and staff time, and their relatively low-volume of sales. A pair of glasses, therefore, would often cost well over $300.

Then came department stores. These stores brought a revolution to commodity shopping and drove smaller, low-volume mom & pops out of business. Their reach became ever more broad and eventually commoditized once specialized service-based industries such as hair-dressing and, yes, optometry.

But the big box retailers did not base their price on the true cost of providing a pair of eyeglasses. Instead, the cost was based on what consumers were "used to" paying, based on their experience at the local optometrist. The big box chopped 30% or 40% off this price and offered glasses that were priced very competitively in relation to the local ecomony, but did still not reflect the true perfect-competition price of eyewear.

Fast forward a few years. The internet democratizes information, levels the playing field, and allows for some real competition in the eyewear industry. Beyond this, companies could reach a worldwide customer base and could rely on an eye examination done elsewhere. Technology smoothed the process of providing a custom product to hundreds of thousands of consumers, and the once specialized, individualized experience of buying glasses from an individual, highly-paid eye doctor, became simply a matter of filling an order.

That, I believe, is why glasses are so expensive when bought in the usual way.

 
At 8:35 AM, December 01, 2007, Blogger Watcher said...

The volume of eyeglasses sold each year is tremendous. Of the 230 million Americans, I would guess that 150 million wear glasses and get new ones every 2-3 years. That is 50-75 million pairs per year. That alone should have caused the cost of eyeglasses to go down. It has not. I think there is some kind of collusion whereby retailers tacitly agree to keep prices at a certain level. It takes Lenscrafters 35 minutes to make a pair of glasses. The material is plastic and a tiny amount of metal for the frames.

This cost is outrageous and the Internet is the place to buy until pressure causes the stores to get in-line with the real cost to deliver the product.

A side note. In Canada you can purchase lenses from Zeiss that are very high-index. That means the lenses they sell are far thinner than anything you can buy in America. America bans the lenses because of some cock-a-maimy reason about shatter resistance tests and standards.

 
At 8:37 AM, December 01, 2007, Blogger Watcher said...

The volume of eyeglasses sold each year is tremendous. Of the 230 million Americans, I would guess that 150 million wear glasses and get new ones every 2-3 years. That is 50-75 million pairs per year. That alone should have caused the cost of eyeglasses to go down. It has not. I think there is some kind of collusion whereby retailers tacitly agree to keep prices at a certain level. It takes Lenscrafters 35 minutes to make a pair of glasses. The material is plastic and a tiny amount of metal for the frames.

This cost is outrageous and the Internet is the place to buy until pressure causes the stores to get in-line with the real cost to deliver the product.

A side note. In Canada you can purchase lenses from Zeiss that are very high-index. That means the lenses they sell are far thinner than anything you can buy in America. America bans the lenses because of some cock-a-maimy reason about shatter resistance tests and standards.

 
At 12:57 PM, February 26, 2008, Blogger Jackie said...

I personally would reccomend LASIK.

 
At 2:03 AM, August 05, 2008, Anonymous Anonymous said...

Buying online is definitely cheaper, both for regular eye glasses and pinhole glasses.

 
At 3:18 AM, December 08, 2009, Anonymous GlobalEye said...

well have bought a pair from http://www.globaleyeglasses.com/aboutus.html for as low as $5.50...
Georgia Cheap Prescription Eyeglasses

 
At 3:52 PM, March 08, 2010, Anonymous Bob Main said...

I am an optician and have been selling eyeglasses for over 35 years. I worked for Lenscrafters, a private optometrist and was CEO of a chain of retail optical stores. These places need to make a better margin because of their overhead (mall rents, expensive opticians, lower volume). I started an online eyeglass business www.halfpriceeyeglasses.com to give consumers an alternative to high price glasses. Since I don't have all of the overhead I can sell for less. They are the exact frames and lenses I sold at the retail places, just half the price.

They key to buying glasses online are :
1. Make sure you can get a 100% satisfaction guarantee. Some online places only refund if they make a "mistake".
2. Make sure you can talk to somebody (like an optician). Some sites only communicate via email and good luck getting an answer.
3. Look for sites that have experienced people handling your order and are based in the US. Many sites are based in China or the glasses are made in China. Nothing wrong with China, but many know nothing about the technical aspects of glasses.
4. Also look for name brand frames. Some of the $7.00 online eyeglass frames are so cheap they will only last a short time and will never fit well.

Buying glasses online can be a great savings, but just be cautious.

 
At 2:11 AM, April 28, 2010, Anonymous Marc said...

I wrote a blog post a little while ago answering this question:

http://www.justeyewear.com/blog/tips-and-advice/why-glasses-are-so-expensive/

Basically, it comes down to 1) overhead and 2) services that are bundled with the price of the frames, like adjustments, measuring, etc.

 
At 2:22 PM, October 11, 2011, Anonymous Anonymous said...

lencrafters charged my wife 95.00 for an eye exam, then charged her 576.00 for bifocals, is that a reasonble price for eyeglasses.

 
At 5:28 PM, June 11, 2013, Blogger nancy mesko said...

If you buy a PAL how do you know your seg height and what are your PdS as an optician I don't give them out to Px' s

 
At 5:38 PM, June 11, 2013, Blogger nancy mesko said...

Another reason glasses cost so much because insurances take a lot of the money if the imsurances weren't involved prices would be much lower
Most people can't adjust their glasses and that comes with the service you get when you buy from B&M, you need an rx check how do you do that on line?
I think it is very bad suggesting you buy glasses on line the industry is not that easy as just clicking some buttons in a computer and getting a pair of glasses you can see through

 
At 7:31 AM, June 12, 2013, Blogger Watcher said...

My point is remains valid. Glasses cost anywhere from $300 a pair to $700 or more. I can buy a really great, complex, sophisticated computer or $239 anywhere. That product takes longer that one hour to fabricate, is way more complex and has some major hardware, cooling motors, yards of wire yet, it costs far less than a simple pair of eyeglasses.

Eye glasses are a necessity and, based on the simple fabrication process, vast numbers being made and the proof that they can be made in China or England for cheap,they are so over-priced that it is criminal.

I measure my own PD or any optometrist can do it. The temple length, nose bridge width and other measurements are just as easy to do.

I get perfectly good graduated bi-focal eyeglasses with a thin lens and all the other goodies for $69.00.

 
At 8:56 AM, January 07, 2014, Anonymous Anonymous said...

I was close friends with an optomitrist and his optician. They used to GIVE me Kenneth Cole designer frames, lenses (with all the trendy coatings, etc.) for NOTHING. When I asked them how they could do it, they simply said the markup was astronomical. Run-of-the-mill frames were typically $5-$10 and "designer" frames were in the $20-$30 range.

In short, they rip you off with criminal mark-ups. I had gotten Kahlon sunglasses, with Rx lenses, free, as well.

 

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