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Why Regulate Junk Fees?

Author

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  • Neale Mahoney

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-one 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.

Suggested Citation

  • Neale Mahoney, 2025. "Why Regulate Junk Fees?," Journal of Economic Perspectives, American Economic Association, vol. 39(4), pages 203-220, Fall.
    • Handle: RePEc:aea:jecper:v:39:y:2025:i:4:p:203-20
    DOI: 10.1257/jep.20241409
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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