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New tech tools for discriminatory pricing

12
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11
Michael
07-22-2006
04:21 AM ET (US)
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10
wayne
07-31-2003
10:12 PM ET (US)
Actually, according to standard economic theory, perfect price discrimination results in the exact same amount of efficiency as without price discrimination. It's just that the producer is able to take all of the consumer surplus.

/still remember intermediate micro course from several years ago
9
QrazyQatPerson was signed in when posted
07-31-2003
06:49 PM ET (US)
"If you want to price discriminate as a firm you want to offer a higher price to the company that is going to buy your product anyway, and you want to offer a discount to the company that you determine is unlikely to buy your product otherwise."

Yes, that would be one way, but it's not the only way. There would not be (there is not now) one and only way way prices are set. Your example assumes that this is essentially a completely discretionary purchase. In the example I gave, both companies really want to buy this product; perhaps it's something that both need and it's by far the best product available. But one company -- at least according to the vendor's analysis -- is only going to be buying that one product from them. Perhaps all the vendor's other products don't work for that business. The second company should be -- at least according to the vendor's analysis -- a customer for many of the vendor's other products. So they offer the second customer a good price to get good will for the future, and stick it to the first customer. That's the example I gave.
8
Brian Carnell
07-31-2003
06:21 PM ET (US)
"This sort of pricing means a vendor could, for example determine that your company will likely not buy from them in the future, while another company probably will. So the other guys, as suspected good future customers, get a good price, while you pay through the nose for the same type and quantity item."

 If you want to price discriminate as a firm you want to offer a higher price to the company that is going to buy your product anyway, and you want to offer a discount to the company that you determine is unlikely to buy your product otherwise.

A good example of this is mass market books. Hardcover books are used to maximize profits from people who have to read the latest bestseller *now* and are relatively price insensitive, while the mass market paperback appeals to those who are willing to wait in exchange for a lower price.

The other everyday version of price discrimination is coupons. Are you really pissed when you buy something at full retail and the person behind you has a $1 off coupon?

Yes technology makes price discrimination easier on the one hand -- firms can better guage what you're willing to pay for something. But on the other hand it makes it easier for consumers to communicate about prices making it hard to offer the lower prices just to those who are price sensitive.
Edited 07-31-2003 06:22 PM
7
Jerry KuntzPerson was signed in when posted
07-31-2003
05:37 PM ET (US)
Did Coke ever implement those vending machines that changed prices higher as the outside temperature got hotter? Or did they back down from the outcry?
6
QrazyQatPerson was signed in when posted
07-31-2003
03:24 PM ET (US)
I learned all I needed to know about business pricing as a boy in Minnesota, via Woolworth's. They had a reel-to-reel tape recorder I coveted just after the start of the school year -- $9.95. A month later the tape recorder went "On Sale" -- $10.95. A month later it was on "Special sale -- $11.95. And then it was a "Special Christmas Sale" -- $14.95. I never did get the tape recorder at Woolworth's -- I bought one used from a friend instead.

Since that lesson I've made very little money, yet I have several really nice cameras, a motorhome, have owned a dozen terrific motorcycles and several nice cars, all due to the lessons I learned at Woolworth's. I should write a letter and thank them -- oh, aren't they out of business now?

BTW, highly desirable? Maybe, maybe not. This sort of pricing means a vendor could, for example determine that your company will likely not buy from them in the future, while another company probably will. So the other guys, as suspected good future customers, get a good price, while you pay through the nose for the same type and quantity item. That's just one way this could affect people, yes, even you, very negatively. I'm sure a little brainstorming could come up with others.
Edited 07-31-2003 05:28 PM
5
cptnrandyPerson was signed in when posted
07-31-2003
03:07 PM ET (US)
This would be highly desirable.

I work for a small software company. We have a single product which we sell both to individuals in single copies, and to businesses in multiple (even quite large) quantities. It would benefit both us and the consumer if we had a way to sell them the same product for less without, in effect, cutting the price of our business sales (not desirable).

Right now, the only way to do that would be for us to reduce the functionality and create a lite or consumer version.
4
Eli the BeardedPerson was signed in when posted
07-31-2003
02:50 PM ET (US)
Ernie (/m2): I think that goes to show the biggest inefficency
in the market is the public understanding of what they are
buying. Ignorance is not cheap.
3
Roland PiquepaillePerson was signed in when posted
07-31-2003
01:32 PM ET (US)
In "Will the Net reshape business?", an article published by Knowledge@Wharton in April 2002, still available from CNET News.com, the author was discussing such discriminatory pricings. I commented this article here. Basically, a professor of management argued that depending of your starting location on the Web, a *cheap* one or Forbes, you would obtain different prices from online travel companies. I tried it, sending identical queries *simultaneously* from different computers, but I didn't find any differences. Maybe things have changed.
2
erniePerson was signed in when posted
07-31-2003
12:32 PM ET (US)
Cool! I've thought a lot about the dark art of pricing ever since I read this Business 2.0 article

"Monroe tells a pricing story that shows how even the simplest situation can confound accepted wisdom about prices. "A company is making two versions of the same product," says Monroe. "One has a little more gold and foil on it, but they're essentially the same. One is $14.95; the other is $18.95." Not surprisingly, the $14.95 item is selling better. It's also the lower-profit product.

"Then a competitor comes in with a third product. Again, it's essentially the same thing, but a fancier version. And it's much higher priced: $34.95."

For our original company, asks Monroe, "what becomes the best-seller? Why, the $18.95 version, of course."

It's a small story, but it's true. In fact, you can feel how right Monroe is. "The point," he says, "is that economic theory says that can't happen. But it does." The neat curves and crisp laws of supply and demand, elasticity, and rational behavior that everyone learns in microeconomics class don't work in the real world.
Edited 07-31-2003 12:38 PM
1
Derryl MurphyPerson was signed in when posted
07-31-2003
12:30 PM ET (US)
Ironic, considering the previous post from Cory about BB readers getting a discount.

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