Hedonics, Paper Towels, and Costco

Costco recently changed their Kirkland paper towels.

The old packaging had 1026 square feet of 2-ply paper towels with 80 sheets per roll.

The new packaging has 1026 square feet of 2-ply paper towels with 160 sheets per roll.

In my opinion, this was a slight quality improvement. It is nice to have the option to use a smaller sheet when all you need is a smaller sheet. Over the course of time, I would therefore expect that this option will save me money.

Here's where it gets interesting to me. How much should the government adjust its price based on the quality improvement?

The government conspiracy sites would claim that they should not adjust the price at all. We get the same amount of paper towels!

The government sympathizer sites (if any existed, lol) would claim that they should call it 50% deflation. We get twice as many sheets!

I find myself between the two extremes. Let's assume that the CPI tracked my expenses and mine alone. (It doesn't.) Let's assume that I'd be comfortable with a government employee sifting through my garbage looking at actual paper towel usage. (I wouldn't.) Let's also assume that paper towel prices were not even remotely important to me so that I was free to use as much as I like without even having to think about it. (I don't.)

In this semi-perfect world, if the government found that the new packaging caused me to use 5% less paper towel then I would be completely fine with the government claiming that the new packaging was 5% deflationary. Call it a productivity miracle if you will.

Let's put this another way. If I was at Costco and saw both packages sitting side by side how much more should I rationally pay for the option to tear off smaller sheets? I have seen them side by side and they were the same price. I can tell you first hand that I had no desire to buy the old packaging. I'm not sure how much more I would have paid for the new packaging but it was definitely more than $0.00. Had they priced both perfectly and accounted for all hedonics, I might have stood there 5 minutes trying to make up my mind.

This was the primary risk I was taking when I hoarded paper towels. There was a quality improvement since I first started accumulating them. I locked in a previous standard of living and missed out on a productivity miracle.

Perhaps this also partly explains the allure of gold and silver. There have been no quality improvements in gold and silver. I'm told that's a good thing. Although I owned gold and silver from 2004 to 2006, I'm not exactly convinced that it is though. Perhaps it has something to do with the video games I'm imagining in the distant future. I'm really looking forward to playing them.