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Posts Tagged ‘price discrimination’

Why Does Airport Pickup Cost More?

We are arranging a car to take us from our flat to Heathrow Airport early Saturday morning, then return us on Monday evening.  The price going to the airport is ₤28, the price returning is ₤38.  Why the difference?

One possibility is cost-based price discrimination: the driver may have to wait at Heathrow, since the plane and retrieving our baggage may be delayed.  Another is that the prices are set to match the differential set by metered taxis to reflect waiting time for fares at Heathrow (although I would think that competition among car services would eliminate that differential).  I don’t see how this differential could arise from demand-based price discrimination; and neither of the other explanations seems very satisfying.

(HT: DA)


How to End (Price) Discrimination

John List and Uri Gneezy have appeared on our blog many times. This guest post is part a series adapted from their new book The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life. List appeared in our recent podcast “How to Raise Money Without Killing a Kitten.”

The passage of the Americans with Disabilities Act was a landmark civil rights bill. It afforded the disabled protections against discrimination that were similar to earlier landmark civil rights bills. In particular, the bill targeted two types of discrimination. One type was the discrimination against the disabled motivated by hatred or disgust. For example, one provision targeted employers that denied employment opportunities to those that truly qualified. Other parts of the bill focused on ensuring a level playing field for the disabled, like one requirement for businesses to make readily achievable retrofits to their businesses to afford the disabled access.

When economists think about the causes of discrimination, they tend to lump them into these two categories. The first is called animus discrimination, which is the type of discrimination we tend to associate with the treatment of African-Americans in the early 20th century. The second is called statistical discrimination, which is discrimination motivated by statistical trends associated with groups. For example, women tend to pay less for auto insurance because they are safer drivers. 


Price Discrimination? Racial Discrimination?

From a reader named Philip Mulder comes this photograph:

Philip says this is a hair-cutting joint in Washington, D.C. As you can see, it offers a 50% discount if your name is — in this case — Amanda, Rachel, Katie, Peter, Andrew, or David. I don’t have my master database of black-white names handy (hey, it’s summer), but I’m pretty sure that at least five out of those six skew pretty white. So, a couple of questions:


Age Discrimination? Pay Your Birth-Year Rate

Canadian reader Lisa Sansom wrote to us about an interesting price promotion at Starwood hotels: 

PAY RATES EQUAL TO YOUR BIRTH YEAR 

We’re celebrating the year you were born. With this special offer for two or three night stays, you’ll receive rates equal to your birth year!

  • First night: full rate
  • Second or third night: rates equal to your birth year! (If you were born in 1948, you’ll receive your 2nd and 3rd nights at $48!)
  • Rates for second and third night stays will be confirmed at check-in upon presentation of valid ID.
  • Valid for arrivals Thursday – Saturday

Pricing in the Land of Beers

Belgium prides itself on being “The Land of Beers.”  A Belgian student tells me that this pride leads to some unusual pricing policies among the less well-known breweries.  Apparently, many charge a higher price for their products when they are sold within the local area around the brewery, since people are proud of their local brand.  This is a clear example of demand-based price discrimination.  The average cost of selling locally is probably below that of selling elsewhere (lower transportation costs); but locals’ pride in the native tipple gives the brewers some monopoly power, which they are happy to exploit.  The brewers are made better off (higher profits) by the locals’ behavior; and the local people must be better off, otherwise they would choose different brews.


Men, Women, and Taxi Fare

A study on the taxi market in Lima, Peru examines price differences between men and women. Taxi prices in Lima are set by bargaining, and the market of sellers is extremely competitive. The authors initially found, surprisingly, that “men face higher initial prices and rejection rates.”

However, when the experiment was performed again with a strategic move, the discrimination disappeared:

Passengers in this study begin by rejecting a first taxi to send a signal of low valuation to a second (waiting) taxi which they then negotiate with. Despite passengers otherwise using an identical bargaining script, we find that negotiated outcomes at the second taxi are gender blind. The second taxi treats men and women the same.


The Economics of the Vegetarian Option

Went to a one-star Michelin restaurant in Bonn last night.  One of the best meals I’ve ever eaten. Three of the four of us ordered the five-course prix fixe all-vegetarian menu.  As we left, I thanked the chef-owner — who responded “Despite it being vegetarian!”

He seemed slightly upset about serving this menu. Was it because his revenue from it was only €63 compared to €91 for a five-course regular menu (which had one meat and one fish course)?  Maybe. But I don’t believe the vegetarian menu used less labor, nor was there a €28 difference in materials cost. 


A German Haircut

Got a haircut at the beauty parlor down the street in Bonn, Germany.  The young lady washed my hair first and dried it after very carefully — neither of which is done at home.  The whole thing cost only €10, much less than I pay at the beauty parlor that my wife patronizes in Austin.  On the price list, though, no price was as low as €10.  I asked why, and was told they give a special price to those who are (as we might say in the U.S.) follically challenged. I observed a hirsute fellow in the next chair, whose haircut lasted much longer than mine.  Clearly, the shop was engaging in cost-based price discrimination.


The Strangest Price Discrimination You'll Ever See?

Adriano Dutra Teixeira, a Brazilian economist, sent us this photo from a restaurant. As he translates:

“Social Responsibility: 50% discount on meal for clients over 70 or bariatric surgery (stomach reduction).”

He adds:

I thought it was hilarious! So I wrote a blog post with a microeconomic approach to the promotion, using price discrimination.

I had to chuckle, in part because we’re finishing up a podcast about commitment devices, in which Levitt offers some bizarre alternatives to bariatric surgery (which we wrote about here), since it is such a drastic commitment.


Why Does a Caucasian Dollhouse Cost Nearly 70% More Than an African-American Dollhouse?

If you were shopping on Amazon.com last night for a Fisher-Price “My First Dollhouse” with a Caucasian family, you would have been asked to pay $63.99. If, however, you wanted to buy what looks to be a nearly identical “My First Dollhouse” with an African-American family, the price was only $37.99.

Amazon reviewers have taken note, and aren’t pleased. When my son Solomon (11 years old) wandered past my computer last night as I was looking this over, he didn’t need any prompting: “That’s so racist!” he said.

Is it? What is it that we’re seeing here on Amazon — racial discrimination? Price discrimination? Neither?


Getting Married? Then Get Ready for Price Discrimination

A reader named Elliot Millican writes in to say:

At one point in SuperFreakonomics you mentioned a particular brand of hair clippers that are offered for humans and for pets. You noted that the human clippers carried a higher price even though they appeared almost identical. You went on to say that the pricing scheme is a simple result of the consumer’s willingness to pay more for their clippers than they would their dog’s. [Yes indeed: this is known as price discrimination.]
These hair clippers reminded me of something I experienced when my wife and I were engaged (8 years ago). Let me quickly give the background: due to limited wedding budget, we had our wedding at church and a reception at the church with cake, punch, and light food. This allowed us to invite as many people as we wanted because the church was free and the cake/food prices weren’t terribly expensive. But we had a second reception just for family and wedding party at a hotel (for about 60 people). This second reception was more like your traditional wedding reception… open bar, sit-down dinner, and a DJ. In short, it was expensive, but affordable with only a fraction of the guest list.


What's Really Going on at the Arcade

A student described her summer job at an arcade. In the “crane” game you win prizes by manipulating a claw to grab stuffed animals or basketballs, but the arcade owner can and does manipulate the odds of winning.


Separating Markets

My son is renting a car in December. He’ll drive it for two days in Orlando, then he’ll drive to South Florida for an eight-day stay. With the drop-off charge, the price is $900. But if he drops the car off in South Florida when he arrives and rents a new one from the same company, the total price is only $500. He values his time spent dropping off the car at less than $400, so he’ll do it.


Freak Shots: Honest Mistake or Snack Gouging?

Blog reader Abe Mirrashidi sent us this photo of a vending machine at his workplace which has a most unusual pricing scheme. The Cheetos and Doritos in “A0” and “A2” sell for $.65, and are identical to the Cheetos and Doritos in “B0” and “B2,” both of which go for $.75. You can guess which slots get sold out first.