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« John Cassidy's Interview With Eugene Fama | Main | Economic Wisdoms in the Cassidy Interviews »


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Amen to 'the power of the competitive market' though you might want to factor in the cost of replacing that Storm. They introduced it here last year in Ireland to go head-to-head with the iPhone and it died a death (according to a die-hard blackberry-using friend of mine).

I'm a die-hard iPhone user myself: but that's the competitive market for ya!

Was that the original Storm, which sucked, or the Storm 2, which we bought and is supposed to be much better?

"The total net cost for BOTH phones was a whopping $49.98. A new two-year contract with Verizon ..."

Seriously? You don't understand bundling and what you actually bought?

Best regards,

Oh I understand what I bought (printer and cartridges as I said in the post), but I stand by the general claim. And since I'm very happy with my service from Verizon, I'm happy to take the cross-subsidy.

Steve, interesting example of price discrimination. I did a presentation for a management accounting class last semester and the issue was 'price skimming' where a seller will release a product with a higher price to get a lower sales volume of those willing to pay more, before dropping the price to get the next tier of users. We suggested this was an example of price discrimination, but the tutor didn't agree. She was basically insisting it had to be the same good on sale at the same time with different prices. What do you think?

Interesting question of whether it has to be "at the same time" to really be price discrimination. Most of the examples we use in class (eg, student prices at the movies) are "at the same time" and I think that's probably correct. Otherwise, where does one cut off the time span? Is it price discrimination that the buyers of the first Mac paid way more per "operations per second" than a buyer in 2010 does? I don't think so. If not, why is any time cut-off non-arbitrary?

Steve, I guess the key idea is that it has to be 'the same product' which would imply same place, time, specifications etc. But, as you have pointed out, sellers can change time, place and specification as a means of discrimination between customers. The example you have used before is weekend stop-overs in travel services. This is a difference in specification and/or time. Another example would be business hours and after hours prices for cellphone calls, given most business use is during busines hours. Software vendors often have a free version with limited features, and full features for paying users. Drug companies often charge different prices for the same drug in different countries. Couldn't you also ask whether these differences are arbitrary or not? When does a difference make it a different market and a different product? I suspect the economist would suggest the answer is the degree of substitution between the products, and/or cross elasticity of demand.

Given all these examples, it is tempting to put 'price skimming' in the same 'price discrimination' category. If the cross elasticity of demand by buyers in periods 1 and 2 is highly positive, then why not?

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