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Sliding scale fees are a form of price discrimination in which fees for goods and services change according to the buyer's ability to pay. People who have higher incomes or assets are charged more than those who have less. Sliding scale fees are used in a number of contexts and are utilized for both non-profit and for-profit purposes.
Many non-profit organizations charge sliding scale fees for services they provide. The higher fees of wealthier users of the group's services subsidize services for poorer users who could not afford to pay the full price, allowing these organizations to aid people who could not afford to pay market value for the service while still bringing in enough income to continue operations. Some schools and colleges offer reduced tuition fees to students from low-income backgrounds, for instance. Sliding-scale fees are common in medical facilities. Religious institutions that offer services, such as childcare or education, often charge according to income.
Aside from charities, membership dues in organizations such as professional associations, political groups and clubs might also be based on a sliding scale. Government services partially supported by user fees might have sliding scale fees as well. Some adoption agencies also charge according to income.
Services from professionals working in certain fields often have sliding scale fees. In some cases, the sliding scale will also adjust for changes in the client's income that render him or her unable to pay the originally agreed upon fee, such as loss of employment. This is a common practice among counselors and therapists, and it is also done by some medical doctors and attorneys.
This can be done for business purposes, because it increases the number of people who are potential clients, maintains relationships with clients who have suffered temporary financial misfortune and can help bring in new clients because of referrals from existing clients or by creating a positive reputation. In some countries, providing services to the needy at a reduced cost can make the professional eligible for tax deductions for charitable giving. It can also be done for altruistic reasons, in order to make services available to people who have limited resources, or because of a mixture of both charitable and business motives.
The use of sliding scale fees is constrained by the potential for abuse and the cost of gathering the information necessary to prevent it, because an unscrupulous person has an incentive to lie about his or her income to benefit from lowered fees. For example, retail stores might potentially increase the number of profitable sales they make by charging on a sliding scale, because they would have more potential customers, but the cost in both time and money of acquiring the necessary information would be prohibitive. The profits from the additional sales would not be enough to make confirming the customer's true economic status worth the expense for the seller, and the discount would often be too small to be worth the time, energy and sacrifice of privacy and convenience from the customer that is needed to document his or her income or wealth.
Thus, sliding scale fees are most often found in situations where the relationship between buyer and seller is ongoing and involves enough money to make going to the trouble of confirming the buyer's economic need worthwhile. The relationship between an attorney or counselor and his or her clients, or between a school and its students, are examples. Sliding scale fees can also appear where the relationship is not necessarily ongoing but the cost for a single service is potentially very high, as is the case with many medical procedures or the adoption a child. They are also used in situations where the buyer is trusted to tell the truth because of pre-existing social bonds with the seller, as is often the case with membership dues for social groups and clubs or with services provided by a religious institution to members of its congregation.
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