The economics of haircut

Earlier this month, I needed to get a new passport-sized photograph. My wife said my hair was in a bad shape and would I please get a haircut. After 37 years of marriage I knew it was futile to argue and went looking for a saloon. It took me an hour to find one that was not crowded — which I define as having only four people in the queue or, a 30 minute wait because there were only two chairs.

As I looked alternately between my phone and the back of other people’s heads, I was reminded of something Dr D Subbarao, former Governor of the Reserve Bank of India, had spoken about six years ago, namely, the price of haircuts. Why do they cost more now, he asked, than they did 30 years ago? Why do nearly bald fellows pay the same as others with thick mops on their head?

He was a latecomer to the puzzle. I, on the other hand, have always been fascinated by the economics of haircutting. What Dr Subbarao had said was in the context of inflation. But barbers, haircuts and saloons are much more than that. Indeed, they hide many serious questions of economics. For example, what determines the price of haircuts: the amount of work that the barber must do or something else? Why do haircuts cost more even though the average amount of hair to be cut per head has not changed? What is the role of technology? Why do they cost what they do when quality is invariant to price?

Clearly, skills don’t come into it at all, and it is only the overheads, the creams, the towels and the shampoos that matter. In fact the guy under tree throws in a vigorous three minute head massage for free.

At a 5-star saloon, you can pay as much as ₹1,500 for a haircut of indifferent quality whereas the fellow under the tree — one or two of whom I have tried — can give you a superb cut and make you feel great for just ₹15. Clearly, the skill alone doesn’t determine the price. It is only the overheads, the creams, the towels and the shampoos that matter. In fact the guy under the tree throws in a vigorous three minute head massage for free.

Important questions

I had the great good fortune of being taught by the late and great Mrinal Dutta-Chaudhuri, Professor of Economics at the Delhi School of Economics. Amongst other things, he taught the location theory and since then I have always been interested in how businesses locate themselves.

So, how do barbers decide where they will locate their shops? Many markets have as many as two or three while others have none at all. The differentiator between them is the ambience: a/c, non-a/c, fancy chair, wooden chair, clean towels, dirty towels and so on. But all of them charge the same amount. That should lead to longer queues in the better shops but it doesn’t. Clearly, clients go for the barber, not the ambience.

There are many other mysteries. For example, why are barbers’ shops not more widely dispersed, say, like dentists or path labs? Also if the population is growing, why is the supply of barbers not keeping pace? The price of a haircut would not increase if that was happening. Is there really a shortage of barbers? If so why?

There are many other questions like how does a barber decide on the optimum number of chairs in his saloon? Does he provide for peak loading on a weekend or only for off-peak loading on weekdays? How many barbers should be on duty on weekends and weekdays? Is mechanised cutting better than the old fashioned way with scissors and comb? How much time does mechanisation save per chair? Why does a haircut cost only a quarter of a head massage or shampoo? Why does a mere trim cost the same as a crew-cut?

I can go on but the point must be clear: uneasy lies the head that goes for a haircut.

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