Archive forprice discrimination

New Technology Makes Price Discrimination More Enticing

My father owns two bicycle stores in Connecticut.  He started the first shop when he was 16 years old while finishing his high school education.  When I was young, he used to tell me stories about how poorly the business performed during the early stages and how challenging it was to build it into the successful business that it is today.  I remember he told me a story from the early years of the business and what he thought was an ordinary customer coming into the store to purchase an average bike.  The man was wearing sweatpants with a rip in the knee, an old sweatshirt with paint on it, and a baseball cap.  Based on the man’s appearance and my dad’s experience with previous customers who had a similar appearance to this man, my dad started by showing the man lower priced bikes.  Although the man insisted that he not worry about price, my dad was reluctant to show this man the most expensive bikes in the store.  Infuriated by my dad’s discrimination, the man stormed out of the store.  My dad watched through the window as the man climbed into a $100,000 Bentley automobile.  It is safe to say that my dad learned a valuable lesson about price discrimination that day.  He learned that any person that walks through the door should be treated with the same quality of customer service and should not be discriminated against.

This story about my dad shows how the misuse of price discrimination has the ability to enrage customers and lead to a negative reputation for a company.  However, according to an article on forbes.com, there are new methods for maximizing the efficiency of price discrimination.  This article looks at how a new algorithm helped the co-founder of a cosmetics company increase the company’s online sales by 13.52%.  The algorithm is able to predict whether an online shopper will leave the website without buying something with 99% accuracy.  If the algorithm predicts that a shopper has a low willingness to pay for any of the goods on the website, it will discount those goods, giving the buyer more incentive to purchase the items.  The algorithm will also raise prices if a shopper appears to have a higher willingness to pay.  Although frowned upon, many websites like amazon or the cosmetics company stated previously in this article have taken advantage of the new technologies that allow price discrimination to succeed.  Investigations have started and the morality of these companies is in question; however, this type of price discrimination leads to such a high increase in sales for companies that it is going to be challenging to disband it.

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Skyrocketing Prices of EpiPen

In an article by reuters , it explains the current price increase for EpiPens has made lawmakers very outraged and disgusted. EpiPen, which is an automatic self injection device that contains a generic medicine epinephrine, designed to help save a child’s life in case of a allergic reaction is to take place back in used to cost $100 is now price at $600 in 2016. Thats a $500 price increase! A price increase such as this very unfair to coustomers and families that need this device for their children. Heather Bresch ceo of the pharmaceutical comapny Mylan that distributes EpiPen tried justifying the price hike by claming  that after rebates, marketing, and other expenses the company only makes only $100 off a pair of EpiPens. Though many critics according to article feel like if the EpiPens were sold at a lower price they would still remain profitable with out jacking the pice to $600. The weird part about this price increase in EpiPen is that is that it isn’t sold at thr outrageous $600 pice around the world. According to the article in the United Kingdom two pack EpiPen cost $69, in Canada they cost $181.81, and in Germany they cost $210.21. This is clear example of price disrimination, because there is such a wide margin in the cost of EpiPens in other markets.

http://www.reuters.com/article/us-mylan-nl-epipen-congress-idUSKCN11R2OG

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Price discrimination as an incentive tool

http://nordic.businessinsider.com/after-saving-denmark-with-sex-spies-rejser-have-stepped-it-up-with-a-hilarious-new-campaign-and-a-perfect-price-discrimination-model-2016-11

The above article clearly represents how a travel agency used price discrimination to enforce a change in people’s behavior. Couples with babies tend to have sex less frequently. So, in order to benefit couples because of the positive effects of sex like decreasing stress, increasing life up to 8 years, improving the immune system, the travel agency provides vacation discounts to couples according to the number of babies they have. The travel agency is providing an incentive which is a crucial factor in determining a consumer’s decision. And, because of the discount, the couples are more inclined to have more babies (one of their objectives as Denmark has a high old-age population) and the couples will also have more sex because of the time they will spend on a vacation (another objective of the agency). Price discrimination can be clearly seen during the advertisement video when they show the discount they are offering to couples according to the number of babies (1, 2, and 3). Although, price discrimination is regarded mostly as a strategy sellers use to increase their revenue, we can see from the above article that it can also be used to influence and incentivize certain needs and laws which in this case is having healthy old people in Denmark and increasing the teenage population so that the welfare system can function properly.

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Are You Actually Getting A Good Deal or Getting Ripped Off?

Online shopping has always been the best option for people especially me. It limits waiting in lines, avoiding rude customers and customer service while everything is just a click away. However, CBS, conducted a test that illustrated price discrimination online! Online shopping is not on our side as we once thought. Price Discrimination is when there are different prices listed for the same product, but the prices change depending on the situation. CBS’s research discovered based on someone’s computer, online search history, and zip code online retailers use this information to figure prices discrimination. Northeastern University conducted a study that demonstrated how nine out of sixteen online retailers and travel websites use this method to increase their profits.

One example of Price Discrimination is Home Depot. A man was offered free home delivery for a tree he paid $399, but CBS producers in Boston and Minneapolis found the same exact tree for $438. Home Depot then admit that in some cases based on a person’s region where they log on will determine their price.

One tip: always use multiple computers or phones to order something for the best price.

I-Team: You May Be Paying More Than Others When Shopping Online

 

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Price Discrimination in College Costs

https://www.bloomberg.com/view/articles/2012-11-27/misconceptions-101-why-college-costs-aren-t-soaring

 

Price discrimination in college costs is benefit for the needy family and make sure everyone can go to college. The one of the lesson of price discrimination I learn is that price discrimination requires the ability to separate customers according to their willingness to pay. So, the price discrimination here results an interesting and good outcomes. For the rich family, they might me pay more costs to send their children to college. For the middle class family, they actually pay the constant price. However, for the needy family, government would like to make sure everyone can accept education, and they can receive the expansion of aid. The costs are more basic on each families’ incomes. I think it is such a good policy!

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How does big data create monopoly?

In the article “Big data is coming for your purchase history – to charge you more money“, the author talks about what role does big data play in price discrimination, and how does that give sellers market power that is greater than traditional monopolists.

Based on the extent to which a market is segmented, price discrimination can be ranked in three degrees. Group pricing, or third-degree price discrimination, divides the market in segments and charge the same price in each one. For instance, students are distinguished from adults by their student ID cards and are charged lower price in cinemas. Group pricing is an attempt to simplify the diverse market and is not very accurate. Product versioning, or second-degree price discrimination, uses slightly different versions of the same product to let consumers differentiate themselves. The difference can either be in quantity or quality of the product. For example, businesses usually have higher discount than individuals when they buy products in bulk. Operating systems usually have business version and personal one.

Perfect price discrimination, or first-degree price discrimination, allows a seller to charge the maximum willingness of each buyer. With big data, this has become possible. Netflix, for instance, has increased its profit by 1.4%, using data from web browsing history to recommend different streaming services to different users at  different prices. With enormous data collected from consumers’ browsing history, a market of one is created. Each consumer now face a far more knowledgeable and sophisticated seller.

Because big data allows a seller to charge personalized price, even a seller in a competitive market can become a price setter, just like a traditional monopolist. Maybe, one day market price will no longer matter since every single person is charged a personalized price that can be changed in a millisecond.

 

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