I am fairly compulsive about always having my keys with me. But after a series of mishaps, I got locked out of my apartment last week. It was after midnight so I had to call a 24-hour locksmith and he told me he'd be at my door in about half an hour. I spent those minutes panicking over how much it was going to cost. I felt so vulnerable; I needed this service. It was the only way I could get home. And given my desperation and late hour, he could charge almost any amount. After all, prices are set where supply meets demand. I had a very strong, or what we economists call inelastic, demand to get into my home, and there are a limited supply of 24-hour locksmiths. He had all the power.
Or did he? As I waited, I realized I did have some control. If he quoted an astronomical price, I could always decline, get a hotel room and find a lower-priced locksmith during normal business hours when I had more market power. I calculated what my walk-away price was, which was roughly the cost of a hotel, the value I put on the convenience and comfort of getting into my home that night, and the cost of a daytime locksmith. If the locksmith quoted me a higher price than that number, I’d walk.
