I grew up hearing about this "altruistic" doctor in the small town where I grew up. He was hailed for his ability to work with clients to arrive at a price they could afford. For example, he would ask children what their father did for work before assigning a price for the child's visit. Only in a college econ class did I learn about price discrimination. A light bulb went on in my head thinking back to the country doctor. He was both maximizing producer surplus AND becoming a community hero in the process. What a smart cookie!
One relatively benign example of price discrimination is toll roads that run parallel to non-toll roads. Presumably the non-toll road will get more traffic, or less maintenance, and thus move more slowly, and the whole system serves to distinguish people by how they value money and time relative to one another. Arguably, if both roads charged the same intermediate price, wealthy travelers would be frustrated by wasting time in traffic, while poorer travelers would be frustrated by having to pay to use the road. So the parallel toll and non-toll roads seem like a win overall.
A more extreme version of the same thing: a New York Times story in the past few weeks discussed how pervasive price discrimination has become in amusement parks like Disney World, where relatively wealthy visitors, with "skip the line" passes, can take twenty or thirty rides in a day while poorer visitors can only take four or five before the park closes for the day. The existence of "skip the line" passes, all else being equal, ensures that the lines move slowly, which makes "skip the line" passes even more valuable. This feels less benign to me.
I was reminded today that some airlines add a significant surcharge for selecting seats in advance. It costs the airline not a penny more to let a passenger select a seat a week in advance than a day or an hour in advance, but if some people are willing to pay extra for it, they might as well charge extra for it. Indeed, the very act of charging extra for it signals that if you _don't_ pay extra for it, you'll get a lousy seat, and thereby increases the demand and the price.
Come to think of it, the same reasoning goes for government corruption. If I (as a government official) make clear that if you bribe me, you'll get preferential treatment, and if you don't, you'll be left behind, that serves to increase the demand and therefore the price for my bribe-purchased services.
A passenger choosing a seat early does cost the airline something. It reduces the seats available for other passengers to choose and so the value of the ticket to them. And the later the seat is selected the fewer options will be left, hence the less good the seat being chosen.
A passenger choosing a seat early doesn’t reduce the value of tickets to other passengers, it reduces the value of seat selection to other passengers. If seat selection weren’t a commodity being sold separately (as it wasn’t a few decades ago), that would make no difference to the airline’s bottom line.
Which was my point: by choosing to sell seat selection separately, they’ve introduced a zero-sum race, thus raising the price of seat selection even farther.
No, they've unbundled. You used to be able to pay a price and get a flight and a chance at your desired seat -- flight + lottery ticket. This way they got a certain high price from those who don't care about their seats as well as those who do. Increased competition has forced them to unbundle. Now you get a low price flight and whatever seat you're willing to pay for.
As I recall, it used to be that when you bought your ticket, you could pick a seat immediately. So the farther in advance you buy, the better your seat (within, say, coach class). But the option of getting a good seat was equally available to people of different levels of wealth. Anybody who chose to buy a ticket three weeks in advance had a decent choice of seats.
Yes, of course this is “unbundling” two things that used to be sold as one; that’s true of many examples of price discrimination. But I wouldn’t say “increased competition forced” it: it’s a way of increasing profits, so somebody would have come up with it eventually regardless of competition.
"The existence of "skip the line" passes, all else being equal, ensures that the lines move slowly, which makes "skip the line" passes even more valuable."
No. The passes let the line move more quickly, for there are fewer people in it. The trick is to charge enough for a "skip the line pass" that it adds more to profits than the shorter line [fewer customers] subtracts.
I don’t believe so. “Skip the line” passes constitute a second “line” that has priority over the regular line, which doesn’t even START moving if there’s anybody present with a pass.
Computer scientists studying priority queues talk about a phenomenon called “starvation”, where the high-priority queue never becomes completely empty so those in the low-priority queue can wait literally forever. That’s a distinct possibility here.
And it’s more likely because people with passes get into and out of rides much more quickly than anybody else, so they’re disproportionately represented in lines. For example, if 10% of all visitors have passes, but those 10% take five times as many rides per person as the other 90%, then at an average ride, 35% (5/14) of the would-be riders have passes.
If only a handful of people had passes, this wouldn’t be a problem. And if everyone had a pass, they wouldn’t work at all and we’d be back to the scenario before passes (only with higher prices). Somewhere in between is a relative maximum of inequality, which is probably near the relative maximum of profitability.
Priority passes can be seen as the rich jumping the line (bad) OR it can be seen as those who want the ride more paying more to satisy their wants (good). It can also be seen as just a symptom of undersupply - In many cases the operator could make more money if only it had more capacity and a smart operator will invest the extra profit in increasing capacity by, usually, building another ride (good). Of course if space or planning constraints mean that another ride cannot be built then it is more likely to be the first first two.
Disney probably faces some space constraints on building more capacity, but I’m not convinced it has an incentive to do so anyway, since scarcity allows it to sell those premium tickets. It does have monopoly power: there’s only one Disney park within a thousand miles of any given customer.
I don't go to theme parks, largely because I hate queueing, and hence they make no money at all from me. I can't be the only one. Many Brits fly from the UK to Disney in Florida for a holiday - 1000 miles is irrelevant to them.
Assuming the golden ticket allowing 5x more rides in a day costs 10x or more it should lead to lower prices per ride for the regular ticket. However, the understandable emotional discomfort may not make up for that
Price discrimination does not lower anyone's price. It sells to people who would not otherwise buy. If the cost of enforcing price discrimination is not too high, it is therefore welfare improving.
It is more complicated than that. Imperfect price discrimination means that the good is not being allocated to those who most value it, unlike the situation with a single price. I have links in the post to discussions of positive and negative effects in two of my books.
OK, I read. "This inefficiency in allocation may or may not be balanced by an increase in output ... ." I assumed output would increase, as with perfect discrimination, and left it at that. I haven't thought through sufficient conditions for a welfare improvement.
Airlines also track you visiting their site, if you look for flights to the same place on the same date more than once they can be reasonably sure it's important for you to be there for a particular event. This allows them to raise the price just for you. The rising price (I suspect) encourages the customer to snap up the seat now before it rises even further.
I've experience this myself, when using incognito on my browser I can get access to the lower fares again so it must be my cookies they are using. I'm sure they could also use my IP but as far as I'm aware, they don't. Perhaps the benefit isn't worth the cost of storing all the data on their servers, cookies are cheap by comparison.
Another consideration in the case of business-class flyers is that many of them aren't paying their own way -- their employers are paying, or they're deducting it from their taxes so the government is paying part of it -- so they're less price-sensitive than other people.
Many employers won't pay for business class tickets--but will allow the employee to purchase upgrades with their own money (or use frequent flyer miles to get them). This also applies to things like paying to select a seat in advance--the employer might not pay for it, but it's still easier for the employee to do it if the rest of the ticket price is being paid by the employer.
I first noticed price discrimination in a few areas where there is an opportunity to sell a better product for a higher price, but the product was already about as good as it needed to be. In those situations, rather than make a 'premium' version, the seller can instead make a 'lite' version, intentionally removing some useful features/comfort in order to make it worse. Often this can save the seller money on costs, but there are several examples where this makes the process *more* expensive for the seller, whilst still making economic sense overall.
I've seen this with train seats, where some are much less comfy, despite consisting of broadly the same materials and taking up the same space. With PCs and other electronics, you end up paying vastly over the odds for something useful like a larger SSD, but when I first noticed this practice, it was the number of USB ports (+£200 if you want 4 USB ports instead of 1!). And I think they do it with CPUs/GPUs, where it is cheapest for them to make them all the same (fast, functional), and then "downgrade" some of them in an additional process which disables parts of their functionality.
Economically speaking, I know it makes sense, but knowing that the seller has gone out of their way (and spent money!) in order to make my chair less comfortable can be very frustrating to be on the receiving end of!
The case of Intel cpu's long ago was an example of this I thought of using, but I wasn't certain if the less expensive chips had been downgraded by removing a function or if at least some of them were downgraded because they had failed the test for that function. I gather there is sometimes a large price difference between two chips nominally identical one of which passed and one of which failed a test for being run at a high speed.
CPUs (and some GPUs) are the case were you have both the repackaging of low performing samples and straight up downgrades to create feature segmentation.
Another is Intel's introduction of the K suffix and disabling overclocking on CPUs that didn't have that designation. They also claimed that the K CPUs where tested to a higher standard.
For some CPUs, the manufacturer had units that would clock at a higher speed without errors, and sold at a higher price. Some units would function well at lower clock speeds and they were sold at a lower price.
I first learned about this when I filled out what I think was the Federal Application for Student Aid (this was a long time ago, and I don't remember whether it was the same thing kids need to do today.) This was required when applying to attend a State College. They took all of the money I had saved, the income of my step-parent (who wouldn't be paying anything toward my education), the amount of guaranteed student loans I qualified for, and the hypothetical income I could make from a part time job and came up with the total price for me. Of course, not all of this money surfaced and I ran out before my first year was complete. It took me years to pay off the debt and I never finished my degree.
While I understand price discrimination when it comes to handbags and movie theater tickets, there are clearly ethical issues in heavily regulated industries or, in this case, government-owned and operated institutions.
When our daughter was but a child, Virginia or the Federal Government came out with a tax reduced savings plan to help pay for college education. My wife got wind of it and implored me to start one. I refused, saying it'll go into price, our price!
My brother was telling me about how Dodge struggled to achieve this with their electric cars. With gas cars you make the base model and then successive models with more powerful engines, presumably drawing more profit per car from each higher level model.
But with an electric Charger it seems there isn't really a way to do it. They built essentially one version and then limited the engine power electronically. You buy the car and then levels of unlocks for the same car. This was very unpopular and it contributed to the massive loss on the project as there was no way to get the base of more price sensitive sales along with the expensive versions in one project.
Nowadays some companies charge extra for things like enabling the electricaly heated seats to work as a subscription.
The only real nasty about this is that, if you have an accident and need to replace something with subscription features that you do not use, you will end up paying extra for the repair and that definitely feels unfair
I'm sure they do. I think it was BMW that charged extra for enabling the heated seats. My point is that a replacement seat in such a car, if you are not paying the subscription, will cost you more than it should because it includes a facility that you don't want and can't use. No repair to a Tesla uses components that are not necessary in the non-self-driving version (yes there is the s/w but that has zero cost) so it is not bad economically.
These sort of haggling and bargaining are rather considered infra dig in modern world--associated more with third world conditions. Curious why it should be so?
The bargaining on individual levels feels undemocratic. Not a sort of thing a corporation should be allowed to do.
Good question. There are a countries where a lot of purchases are bargained and some contexts in the US, most notably home sales and autos, where the same is true. One cost is the time spent bargaining, so one explanation is either a high value transaction (buying a house) or a culture where the bargaining is a form of entertainment. Standardized goods with multiple sellers tend to make competition drive the price to the lowest sellers will accept, so bargaining is more likely with a single seller or inhomogeneous goods, such as second hand cars or houses.
Someone has probably done research on the pattern of what things are or are not bargained and in what societies bargaining is more or less common but I haven't.
I take a much simpler view: it's their product, they can charge whatever the market will bear. Questions of morality differ by individual, and I refuse to get mired in that mud.
Like I low-key hate that I need to set-up a reminder to cancel my internet subscription every two years because otherwise it immediately increases in price by 50%. As soon as I cancel I get a call and they offer me the discount price again.
Once I tried to call them proactively and tell the hotline agent "Look, we both know how this goes, so please just go ahead and lock in the reduced price for another two years." He wouldn't go for it and only offered to reduce the increase a bit.
Then I went ahead and cancelled and like clockwork got the call back and suddenly it was possible again. They just count on people being too lazy to do it or on forgetting their reminder or just not knowing it's possible. I guess I should be happy that I get a cheaper price that others are subsidizing for me? Really though I would prefer to be able to simply compare the different offers by headline price, make a decision, and then not having to think about it again without having to fear being ripped off.
Price discrimination can get very tricky, certainly detailed. The most useful motto I've ever come across is by a commenter on MR citing someone else: If there's something about pricing you don't understand , it's probably price discrimination.
Competitive airlines can still charge business class since flying with the sort of people who can afford business (or rather, not flying with those who can't) *is* the value itself.
Positive externalities from congregating with that kind? Sure, why not? If competition is intense enough that kind will pay what it costs to keep themselves separate from the rest of us, not a penny more. That wouldn't be price discrimination. It's just another gated community.
I'm a fan of discriminatory pricing, tho it is tempting to hate it as a normal non-coupon-using consumer. But the deceptive practices that trick people into paying higher prices I think is just fraud by another name. Its one thing to be upfront that you can get a lower price by doing a bunch of busy work, but if you tell people they can get a lower price, but then charge them a higher price *unless* they do a bunch of busy work, you've defrauded them and wasted their time. That doesn't seem efficient to me.
I have both sides of this conversation sometimes with my children. From the one side, my children are confused - something in the world makes no sense. My answer, two words: price discrimination. My children are generally not happy to receive this answer. From the other side, much more serious questions about the benefits and costs to society of price discrimination in an area.
I have heard that some airlines use some type of AI to determine who would be willing to pay a higher price for a ticket. Not sure how it works. Likely based on you social media presence. The airlines were WestJet and Delta
On Business class: my best guess is that it is a function of the *timing* of the ticket sale in relation to the flight. That is, a family going on vacation will have time to shop, rearrange trip etc, thus elastic demand curves. SF -> DC business travelers are perhaps regulator/regulatee that needs a word with their firm/agency contact, urgent matters, but with high preference for weekday travel, thus inelastic.
But agreed it’s still a puzzle on the size of the difference… I was going to suggest to check those rates as we get closer to see if they converge or diverge—but airlines and travel agencies supposedly save cookies and track web activity on which flights you’re looking at, to price discriminate of course.
I grew up hearing about this "altruistic" doctor in the small town where I grew up. He was hailed for his ability to work with clients to arrive at a price they could afford. For example, he would ask children what their father did for work before assigning a price for the child's visit. Only in a college econ class did I learn about price discrimination. A light bulb went on in my head thinking back to the country doctor. He was both maximizing producer surplus AND becoming a community hero in the process. What a smart cookie!
One relatively benign example of price discrimination is toll roads that run parallel to non-toll roads. Presumably the non-toll road will get more traffic, or less maintenance, and thus move more slowly, and the whole system serves to distinguish people by how they value money and time relative to one another. Arguably, if both roads charged the same intermediate price, wealthy travelers would be frustrated by wasting time in traffic, while poorer travelers would be frustrated by having to pay to use the road. So the parallel toll and non-toll roads seem like a win overall.
A more extreme version of the same thing: a New York Times story in the past few weeks discussed how pervasive price discrimination has become in amusement parks like Disney World, where relatively wealthy visitors, with "skip the line" passes, can take twenty or thirty rides in a day while poorer visitors can only take four or five before the park closes for the day. The existence of "skip the line" passes, all else being equal, ensures that the lines move slowly, which makes "skip the line" passes even more valuable. This feels less benign to me.
I was reminded today that some airlines add a significant surcharge for selecting seats in advance. It costs the airline not a penny more to let a passenger select a seat a week in advance than a day or an hour in advance, but if some people are willing to pay extra for it, they might as well charge extra for it. Indeed, the very act of charging extra for it signals that if you _don't_ pay extra for it, you'll get a lousy seat, and thereby increases the demand and the price.
Come to think of it, the same reasoning goes for government corruption. If I (as a government official) make clear that if you bribe me, you'll get preferential treatment, and if you don't, you'll be left behind, that serves to increase the demand and therefore the price for my bribe-purchased services.
A passenger choosing a seat early does cost the airline something. It reduces the seats available for other passengers to choose and so the value of the ticket to them. And the later the seat is selected the fewer options will be left, hence the less good the seat being chosen.
A passenger choosing a seat early doesn’t reduce the value of tickets to other passengers, it reduces the value of seat selection to other passengers. If seat selection weren’t a commodity being sold separately (as it wasn’t a few decades ago), that would make no difference to the airline’s bottom line.
Which was my point: by choosing to sell seat selection separately, they’ve introduced a zero-sum race, thus raising the price of seat selection even farther.
No, they've unbundled. You used to be able to pay a price and get a flight and a chance at your desired seat -- flight + lottery ticket. This way they got a certain high price from those who don't care about their seats as well as those who do. Increased competition has forced them to unbundle. Now you get a low price flight and whatever seat you're willing to pay for.
As I recall, it used to be that when you bought your ticket, you could pick a seat immediately. So the farther in advance you buy, the better your seat (within, say, coach class). But the option of getting a good seat was equally available to people of different levels of wealth. Anybody who chose to buy a ticket three weeks in advance had a decent choice of seats.
Yes, of course this is “unbundling” two things that used to be sold as one; that’s true of many examples of price discrimination. But I wouldn’t say “increased competition forced” it: it’s a way of increasing profits, so somebody would have come up with it eventually regardless of competition.
"The existence of "skip the line" passes, all else being equal, ensures that the lines move slowly, which makes "skip the line" passes even more valuable."
No. The passes let the line move more quickly, for there are fewer people in it. The trick is to charge enough for a "skip the line pass" that it adds more to profits than the shorter line [fewer customers] subtracts.
I don’t believe so. “Skip the line” passes constitute a second “line” that has priority over the regular line, which doesn’t even START moving if there’s anybody present with a pass.
Computer scientists studying priority queues talk about a phenomenon called “starvation”, where the high-priority queue never becomes completely empty so those in the low-priority queue can wait literally forever. That’s a distinct possibility here.
And it’s more likely because people with passes get into and out of rides much more quickly than anybody else, so they’re disproportionately represented in lines. For example, if 10% of all visitors have passes, but those 10% take five times as many rides per person as the other 90%, then at an average ride, 35% (5/14) of the would-be riders have passes.
If only a handful of people had passes, this wouldn’t be a problem. And if everyone had a pass, they wouldn’t work at all and we’d be back to the scenario before passes (only with higher prices). Somewhere in between is a relative maximum of inequality, which is probably near the relative maximum of profitability.
Priority passes can be seen as the rich jumping the line (bad) OR it can be seen as those who want the ride more paying more to satisy their wants (good). It can also be seen as just a symptom of undersupply - In many cases the operator could make more money if only it had more capacity and a smart operator will invest the extra profit in increasing capacity by, usually, building another ride (good). Of course if space or planning constraints mean that another ride cannot be built then it is more likely to be the first first two.
Disney probably faces some space constraints on building more capacity, but I’m not convinced it has an incentive to do so anyway, since scarcity allows it to sell those premium tickets. It does have monopoly power: there’s only one Disney park within a thousand miles of any given customer.
I don't go to theme parks, largely because I hate queueing, and hence they make no money at all from me. I can't be the only one. Many Brits fly from the UK to Disney in Florida for a holiday - 1000 miles is irrelevant to them.
Assuming the golden ticket allowing 5x more rides in a day costs 10x or more it should lead to lower prices per ride for the regular ticket. However, the understandable emotional discomfort may not make up for that
Price discrimination does not lower anyone's price. It sells to people who would not otherwise buy. If the cost of enforcing price discrimination is not too high, it is therefore welfare improving.
It is more complicated than that. Imperfect price discrimination means that the good is not being allocated to those who most value it, unlike the situation with a single price. I have links in the post to discussions of positive and negative effects in two of my books.
OK, I read. "This inefficiency in allocation may or may not be balanced by an increase in output ... ." I assumed output would increase, as with perfect discrimination, and left it at that. I haven't thought through sufficient conditions for a welfare improvement.
I skipped that part of your post on the assumption I knew it all! I will go back.
Airlines also track you visiting their site, if you look for flights to the same place on the same date more than once they can be reasonably sure it's important for you to be there for a particular event. This allows them to raise the price just for you. The rising price (I suspect) encourages the customer to snap up the seat now before it rises even further.
I've experience this myself, when using incognito on my browser I can get access to the lower fares again so it must be my cookies they are using. I'm sure they could also use my IP but as far as I'm aware, they don't. Perhaps the benefit isn't worth the cost of storing all the data on their servers, cookies are cheap by comparison.
Another consideration in the case of business-class flyers is that many of them aren't paying their own way -- their employers are paying, or they're deducting it from their taxes so the government is paying part of it -- so they're less price-sensitive than other people.
Many employers won't pay for business class tickets--but will allow the employee to purchase upgrades with their own money (or use frequent flyer miles to get them). This also applies to things like paying to select a seat in advance--the employer might not pay for it, but it's still easier for the employee to do it if the rest of the ticket price is being paid by the employer.
I first noticed price discrimination in a few areas where there is an opportunity to sell a better product for a higher price, but the product was already about as good as it needed to be. In those situations, rather than make a 'premium' version, the seller can instead make a 'lite' version, intentionally removing some useful features/comfort in order to make it worse. Often this can save the seller money on costs, but there are several examples where this makes the process *more* expensive for the seller, whilst still making economic sense overall.
I've seen this with train seats, where some are much less comfy, despite consisting of broadly the same materials and taking up the same space. With PCs and other electronics, you end up paying vastly over the odds for something useful like a larger SSD, but when I first noticed this practice, it was the number of USB ports (+£200 if you want 4 USB ports instead of 1!). And I think they do it with CPUs/GPUs, where it is cheapest for them to make them all the same (fast, functional), and then "downgrade" some of them in an additional process which disables parts of their functionality.
Economically speaking, I know it makes sense, but knowing that the seller has gone out of their way (and spent money!) in order to make my chair less comfortable can be very frustrating to be on the receiving end of!
The case of Intel cpu's long ago was an example of this I thought of using, but I wasn't certain if the less expensive chips had been downgraded by removing a function or if at least some of them were downgraded because they had failed the test for that function. I gather there is sometimes a large price difference between two chips nominally identical one of which passed and one of which failed a test for being run at a high speed.
CPUs (and some GPUs) are the case were you have both the repackaging of low performing samples and straight up downgrades to create feature segmentation.
The classic budget option back in the day was to buy a cheaper AMD CPU and hope that the core they had disabled was still performing well (https://www.cpu-world.com/info/AMD/Unlocking_cores_and_L3.html)
Another is Intel's introduction of the K suffix and disabling overclocking on CPUs that didn't have that designation. They also claimed that the K CPUs where tested to a higher standard.
For a more clear cut case of just downgrading you can see cases like this (https://www.tomshardware.com/news/intel-nukes-alder-lake-avx-512-now-fuses-it-off-in-silicon) where Intel disables functionality to create segmentation between the cheaper consumer level CPUs and the much pricier enterprise CPUs
For some CPUs, the manufacturer had units that would clock at a higher speed without errors, and sold at a higher price. Some units would function well at lower clock speeds and they were sold at a lower price.
I first learned about this when I filled out what I think was the Federal Application for Student Aid (this was a long time ago, and I don't remember whether it was the same thing kids need to do today.) This was required when applying to attend a State College. They took all of the money I had saved, the income of my step-parent (who wouldn't be paying anything toward my education), the amount of guaranteed student loans I qualified for, and the hypothetical income I could make from a part time job and came up with the total price for me. Of course, not all of this money surfaced and I ran out before my first year was complete. It took me years to pay off the debt and I never finished my degree.
While I understand price discrimination when it comes to handbags and movie theater tickets, there are clearly ethical issues in heavily regulated industries or, in this case, government-owned and operated institutions.
When our daughter was but a child, Virginia or the Federal Government came out with a tax reduced savings plan to help pay for college education. My wife got wind of it and implored me to start one. I refused, saying it'll go into price, our price!
My brother was telling me about how Dodge struggled to achieve this with their electric cars. With gas cars you make the base model and then successive models with more powerful engines, presumably drawing more profit per car from each higher level model.
But with an electric Charger it seems there isn't really a way to do it. They built essentially one version and then limited the engine power electronically. You buy the car and then levels of unlocks for the same car. This was very unpopular and it contributed to the massive loss on the project as there was no way to get the base of more price sensitive sales along with the expensive versions in one project.
Nowadays some companies charge extra for things like enabling the electricaly heated seats to work as a subscription.
The only real nasty about this is that, if you have an accident and need to replace something with subscription features that you do not use, you will end up paying extra for the repair and that definitely feels unfair
I am pretty sure that Tesla charges a substantial amount extra to enable self-driving.
I'm sure they do. I think it was BMW that charged extra for enabling the heated seats. My point is that a replacement seat in such a car, if you are not paying the subscription, will cost you more than it should because it includes a facility that you don't want and can't use. No repair to a Tesla uses components that are not necessary in the non-self-driving version (yes there is the s/w but that has zero cost) so it is not bad economically.
These sort of haggling and bargaining are rather considered infra dig in modern world--associated more with third world conditions. Curious why it should be so?
The bargaining on individual levels feels undemocratic. Not a sort of thing a corporation should be allowed to do.
Good question. There are a countries where a lot of purchases are bargained and some contexts in the US, most notably home sales and autos, where the same is true. One cost is the time spent bargaining, so one explanation is either a high value transaction (buying a house) or a culture where the bargaining is a form of entertainment. Standardized goods with multiple sellers tend to make competition drive the price to the lowest sellers will accept, so bargaining is more likely with a single seller or inhomogeneous goods, such as second hand cars or houses.
Someone has probably done research on the pattern of what things are or are not bargained and in what societies bargaining is more or less common but I haven't.
I take a much simpler view: it's their product, they can charge whatever the market will bear. Questions of morality differ by individual, and I refuse to get mired in that mud.
It can certainly make people resentful though.
Like I low-key hate that I need to set-up a reminder to cancel my internet subscription every two years because otherwise it immediately increases in price by 50%. As soon as I cancel I get a call and they offer me the discount price again.
Once I tried to call them proactively and tell the hotline agent "Look, we both know how this goes, so please just go ahead and lock in the reduced price for another two years." He wouldn't go for it and only offered to reduce the increase a bit.
Then I went ahead and cancelled and like clockwork got the call back and suddenly it was possible again. They just count on people being too lazy to do it or on forgetting their reminder or just not knowing it's possible. I guess I should be happy that I get a cheaper price that others are subsidizing for me? Really though I would prefer to be able to simply compare the different offers by headline price, make a decision, and then not having to think about it again without having to fear being ripped off.
You know why business/economy segregation works, you just want us to say it
I do not understand what you are saying. What is "business/economy segregation"?
Price discrimination can get very tricky, certainly detailed. The most useful motto I've ever come across is by a commenter on MR citing someone else: If there's something about pricing you don't understand , it's probably price discrimination.
That's a fairly common view among economists.
Competitive airlines can still charge business class since flying with the sort of people who can afford business (or rather, not flying with those who can't) *is* the value itself.
Positive externalities from congregating with that kind? Sure, why not? If competition is intense enough that kind will pay what it costs to keep themselves separate from the rest of us, not a penny more. That wouldn't be price discrimination. It's just another gated community.
Indeed it isn't
I'm a fan of discriminatory pricing, tho it is tempting to hate it as a normal non-coupon-using consumer. But the deceptive practices that trick people into paying higher prices I think is just fraud by another name. Its one thing to be upfront that you can get a lower price by doing a bunch of busy work, but if you tell people they can get a lower price, but then charge them a higher price *unless* they do a bunch of busy work, you've defrauded them and wasted their time. That doesn't seem efficient to me.
I have both sides of this conversation sometimes with my children. From the one side, my children are confused - something in the world makes no sense. My answer, two words: price discrimination. My children are generally not happy to receive this answer. From the other side, much more serious questions about the benefits and costs to society of price discrimination in an area.
I have heard that some airlines use some type of AI to determine who would be willing to pay a higher price for a ticket. Not sure how it works. Likely based on you social media presence. The airlines were WestJet and Delta
On Business class: my best guess is that it is a function of the *timing* of the ticket sale in relation to the flight. That is, a family going on vacation will have time to shop, rearrange trip etc, thus elastic demand curves. SF -> DC business travelers are perhaps regulator/regulatee that needs a word with their firm/agency contact, urgent matters, but with high preference for weekday travel, thus inelastic.
But agreed it’s still a puzzle on the size of the difference… I was going to suggest to check those rates as we get closer to see if they converge or diverge—but airlines and travel agencies supposedly save cookies and track web activity on which flights you’re looking at, to price discriminate of course.