Comments on: Why the internet is perfect for price discrimination http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: 2paisay http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48040 Sun, 08 Sep 2013 20:45:56 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48040 You forget to mention that McKinsey is advising NYT on the new products. So it is McKinsey which is valuing NYT at zero and access to different devices as valuable.

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By: chazbet http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48012 Thu, 05 Sep 2013 18:53:45 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48012 Extracting every last bit of consumer surplus is a way for vendors to maximize revenue in a given set of transactions, but in repeated transactions how do customers come to feel about vendors that manipulate their prices like that?

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By: chazbet http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48010 Thu, 05 Sep 2013 17:58:37 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48010 Extracting every last bit of consumer surplus is a way for vendors to maximize revenue in a given set of transactions, but in repeated transactions how do you feel about vendors that manipulate their prices like that?

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By: WHS http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48009 Thu, 05 Sep 2013 17:08:27 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48009 Also, that Rory Sutherland article seems off-base.

I can think of one circumstance in which a private producer would use profit-generating customers to subsidize loss-generating customers. That’s when the thing that attracts the profit-generating customers is capacity.

Imagine, for instance, an airline that flies three routes. It knows that being able to provide all three routes is essential in attracting profit-generating customers, but on any given day, only one will generate a profit. It doesn’t know in advance which one. So it makes sense to sell tickets on the other routes at a loss–it can’t get rid of them, and there’s no reason to waste the excess capacity.

But this reasoning breaks down in the instances Sutherland describes. That’s because, when you have first-class and second-class categories, you know in advance which ones will be profit-generating. In that instance, there’s no reason to maintain excess capacity in the loss-generating categories. Just get rid of them!

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By: WHS http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48008 Thu, 05 Sep 2013 17:08:24 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48008 Also, that Rory Sutherland article seems off-base.

I can think of one circumstance in which a private producer would use profit-generating customers to subsidize loss-generating customers. That’s when the thing that attracts the profit-generating customers is capacity.

Imagine, for instance, an airline that flies three routes. It knows that being able to provide all three routes is essential in attracting profit-generating customers, but on any given day, only one will generate a profit. It doesn’t know in advance which one. So it makes sense to sell tickets on the other routes at a loss–it can’t get rid of them, and there’s no reason to waste the excess capacity.

But this reasoning breaks down in the instances Sutherland describes. That’s because, when you have first-class and second-class categories, you know in advance which ones will be profit-generating. In that instance, there’s no reason to maintain excess capacity in the loss-generating categories. Just get rid of them!

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By: WHS http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48006 Thu, 05 Sep 2013 16:07:48 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48006 Here’s the thing about price discrimination: it also reduces the enjoyment that people get from products. That’s a more fundamental reason for the visceral hate, not a vague sense of unfairness.

As an aside, the perfect illustration of this right now is the video game market, where price discrimination has become pervasive. In video games, though, you’re generally paying for additional stuff, instead of paying different amounts for the same product. Nonetheless, the sales techniques used to price discriminate are completely loathed by most consumers: http://www.417am.com/2013/09/free-to-pla y-games-are-awful-and.html

The link elaborates a bit in layman’s terms, but people with some econ background should have an easier time conceptualizing the problem. Welfare economics acknowledges that what you pay for a product is instrumental in your enjoyment of that product. Consumer surplus isn’t some empty abstraction, but a measure of the value perceived by a purchaser. A product with no consumer surplus is a product a consumer doesn’t care whether they buy.

Price discrimination is the practice of minimizing consumer surplus. See how that causes a problem?

The closer you get to effectively price discriminating, the more you are diminishing consumers’ overall welfare. While they may keep buying in the short term, it’s hard to believe that the real, quantifiable reduction of the value they are receiving won’t eventually have deleterious effects on the market.

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By: Altoid http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48003 Thu, 05 Sep 2013 03:33:35 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48003 “the more that a vendor can discriminate according to willingness to pay, the more value that vendor can add”

I think you have the wrong verb there, Felix. It isn’t “add” value, it’s “extract” value. Unless you’re saying that the only value that counts is what accrues to the sell side.

If that’s the case, though, then haven’t we strayed pretty far from the idea that willing buyer and willing seller mutually agree on prices in open markets?

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By: anthrosciguy http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48002 Thu, 05 Sep 2013 00:58:32 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48002 Re “Which logically means that access to the website itself is worthless”. Very flawed logic there; if that were logical then it would never make sense to buy anything offered as a “buy one get one free” offer. Because the second one is worthless and since it’s the same as the first one that’s worthless too and who in their right mind would pay for two worthless things?

Not Spockworthy.

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By: fxtrader7 http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-48001 Wed, 04 Sep 2013 23:16:55 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-48001 My sense is that we will see a movement against this kind of price discrimination at least in some product/sectors. Eg fin services firms are now prohibited from using gender to price products like car insurance in the EU. OK, this is linked to equality legislations, but I suspect if companies start charging different prices based on things like postcodes then some sort of troubles await. This is the sort of issue that can kick off a boycottretty quickly once many people become aware of it – think Starbucks tax avoidance in the UK kind of boycott.

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By: absinthe http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/comment-page-1/#comment-47993 Wed, 04 Sep 2013 01:09:21 +0000 https://blogs.reuters.com/felix-salmon/?p=22428#comment-47993 Uber doesn’t give out coupons ‘like confetti’. You pretty much only get a discount if you’re a first-time rider or if some payments app or some other startup is paying for it.

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