Archives for pricing



Taxi Pricing: Hail or Call?

I called a taxi for a short trip in Melbourne, Australia.  When I paid the price on the meter, the driver added a $2 booking fee.  This is standard here, unlike in the U.S. where the price is the same whether you hail or call a taxi.  

The Australian system may be a sensible way to set price to cover marginal cost.  The booking service generates costs; and in many cases the booked driver “dead-heads” to pick up the passenger, using his valuable time without generating revenue.  On the other hand, having a booked fare saves the driver time waiting in a queue or cruising, so perhaps the impact on marginal cost isn’t so clear.  Is this monopoly pricing, or price reflecting cost?



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
Read More »



The Economics of Toilet Paper

You never know what kind of useful information will turn up in your in-box. From a reader named Darin Haselhorst:

Steven and Stephen,

Thought this might be right up your alley.  An analysis only a true cheapskate could love.

I get very frustrated trying to compare prices on “paper products” at my local supermarket, Safeway.  They have various marketing terms meant to confuse the average consumer, regular, double, mega etc., making nearly impossible to compare prices on the spot.  So, I threw together a little spreadsheet (attached).

The price as Safeway was not all that surprising until you compare it to the price for which Amazon is willing to deliver it to your front door.  The Amazon Subscribe and Save program is about 30% cheaper than going to the store.  Not too bad.  If you have Amazon deliver 5 items on automatic delivery, they will take an additional 20% off the entire delivery.  A deal any true economist simply cannot pass up.

Its surprising to me that Amazon is willing to deliver to your door for approximately half the price Safeway has on their shelf.

Read More »



The Absurdity of U.S. Air Travel: Baggage Fees

On the way home from visiting my brother-in-law’s family in Ohio, we changed planes in Chicago. To avoid the baggage fees, we, like most of our fellow passengers, schlepped our luggage through the airport to the gate in Dayton.  Of course, we had to gate-check it because the overhead bins were long-full by the time we could board (boarding group: infinity). The plane arrived in Chicago late, we waited 20 minutes for our baggage to be unloaded, and then we sprinted to (and barely caught) our connecting flight to Boston.  Naturally, we had to gate-check the luggage for that flight as well.

Baggage fees brought U.S. airlines in 2011 a total of $3.4 billion. That amount is almost one-half of the industry’s 2011 profits of $7 billion. To double the airlines’ profits, the social benefit of which is highly unclear, society incurs many costs: Read More »



FREAK-Shot: Christmas Ornament Edition

Reader Tim Kelly sends in photo from a store in Lombard, Illinois:

As Tim writes:

I spotted an interesting sign while out Christmas shopping the other day.  The sign stated the company’s “breakage policy,” where any broken item must be bought, but that the store will only charge half price on the broken item.  The sign continued offered to repair the broken item, free of charge (I confirmed the free repairs from the shop owner, as it is not explicitly stated in the sign).

The sign was located on a mall kiosk selling Christmas ornaments.  I imagine breakage is a big issue for such a shop, as their product is relatively fragile and are highly enticing to bored kids stuck Christmas shopping with their parents.

My initial instinct upon seeing the sign was that this policy seemed to be inviting people to game the system.

Read More »



FREAK-Shots: Tequilanomics, and Fenway Gas

From a reader in Annandale, Va., named Christopher Galen, who earlier sent in his daughter’s third-grade economics quiz (never too young to start!), comes this pricing quirk:

That’s right: the cost per unit is cheaper on the smaller version, which isn’t the kind of pricing we’re accustomed to in this supersize-me era. (For an interesting related read, see “Does Food Marketing Need to Make Us Fat?” and a Forbes summary of same.) As Christopher writes:

I’m passing along a photo I took Friday at one of the state-run ABC liquor stores in Fairfax, Va. … Neither [bottle] was on sale, and it contrasts with most other liquor offerings, where larger product offerings tend to have a lower unit cost.

Which led me to wonder — and no, I had not done any in-store sampling — is this simply the counterintuitive marketing strategy of a state-run enterprise? Is the store trying to discourage excessive alcohol consumption by making smaller product sizes less expensive?

Read More »



Wine: Very Liquid

Wine Spectator includes a feature (subscription required) on Nicolás Catena, who received the magazine’s Distinguished Service Award for 2012.  His online bio states, “One year, Domingo [Nicolás’ father] realized that it would cost him more to harvest than to leave the fruit on the vines. He asked his twenty-two-year-old son Nicolás, a recent Ph.D. graduate in economics, what to do about such a dilemma. Nicolás advised him not to harvest.”  You don’t need a Ph.D. to see the sense of Nicolás’ advice — if price is too low to cover average variable cost, shut down.  Sadly, “Domingo could not follow his son’s advice with a clear conscience and picked anyway.”  No doubt the family vineyard lost even more money than if Domingo had listened to his son.



“Information Wants to Be Shared”

The Australian economist Joshua Gans, who has shown up on this blog before, has published a new book called Information Wants to Be Shared. It “looks at the struggles facing information content industries — most notably, publishing (books and newspapers) — and examines the underlying economics of those industries.”  Gans and his publisher, HBR Press, are also running a pricing experiment:

HBR eBooks are all DRM-free but, in this case, if someone were to purchase the book (from HBR or from, say, Amazon or Apple), then they will find on the last page a coupon that they can send to a friend. The friend can then buy the book for only $0.99 directing from HBR. In other words, when you share with a friend, your friend gets a great deal. The usual price of the book is $4.99. I have outlined the rationale behind this at my blog Digitopoly. Basically, it is the sort of thing I advocate for information businesses in general.

Predictions?