Sunday, February 14, 2016

Uh, Oh, ...


Amazon has made it much easier to defeat international price discrimination schemes, (like the one used by me.)

Managerial Economics (Hardcover)
by Luke M. Froeb,Brian T. McCann,Michael R. Ward,Mike Shor






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5 comments:

  1. Finally an article which can actually help me save money on college!

    This is an interesting example of how technology is helping consumer defeat Price Discrimination. In practice, we as consumer can probably use this same sort of comparison, whether it be between states or between countries, to compare prices. In fact, this sort of cross-border shopping is being encouraged by, of all industries, the health care insurance industry.

    Because the U.S. medical industry has grown to be extremely expensive, health insurers are encouraging their members to, in some cases, go abroad to have their operations done (Rosenthal, 2013). This brings up one of several interesting questions: is it price discrimination if the supplier (in this case the doctor) can cite a multitude of reasons why the service is better (and potentially safer) when done in the U.S. versus abroad? Can the author of a textbook mimic that by saying that the domestic version of a textbook contains unique passages which cannot be found in a book sold abroad?

    Rosenthal, E. (2013, August 6). The Growing Popularity of Having Surgery Overseas - The New York Times. Retrieved from http://www.nytimes.com/2013/08/07/us/the-growing-popularity-of-having-surgery-overseas.html?_r=0

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  2. Serge, "Price Discrimination" relates to different pricing to different buyers for the identical product/service. If a doctor is able to differentiate his services from another doctor, it wouldn't be considered PD. An example of price discrimination as it relates to your doctor: the doctor charges a wealthy socialite $10k for a face lift, while he charges the recently minted MBA only $6k. In both cases, he thinks that the price offered is the most either party is willing to pay. If he can differentiate in his market, he may be able to charge $11k and $7k, respectively, but he still would like to discriminate between the socialite and MBA in order to maximize his top/bottom line.

    If Amazon published both the socialite and the MBA prices...well, he's screwed (just like Luke's publisher).

    Blake

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  3. There are different types of price discrimination, this being an example of direct price discrimination by charging a different price to different consumer groups for the same product. The example of Dell’s pricing for the home, home/office, or business consumer shows how they segregated the market for the purpose of price discrimination. However, by allowing the consumer to simply check off a box indicating what consumer group they belonged to, Dell may have encouraged some dishonesty that impacted profit margins. Another example is that of a senior citizen discounted price, or special pricing for students. Apple for example has lower pricing for students and educational institutions, making it easier for those beginning to pursue higher education who need a computer, be able to afford one. In addition to discounted pricing, they also offer with approved credit, extended time to pay for the new computer. Apple requires this consumer group to identify the affiliated educational institution for validation purposes. Some examples of indirect price discrimination would be designing products slightly different, with fewer options and pricing them based on each segment, or pricing complimentary products at a higher markup than the base product based on the usage rate of each segment.
    Successful price discrimination is dependent on the demand elasticity of each segment of consumers as well as each price. The consumers in the elastic segment, such as seniors or students, would be charged a lower price and the consumers in the inelastic segment, such as business customers, would be charged a higher price. With the exception of discounted price offerings for large quantity purchases of the same product. It is also dependent on ensuring that consumers in the elastic segment cannot purchase at the lower price and re-sell to consumers in the inelastic segment for profit.
    Economics Online. (n.d.) Retrieved February 26, 2016 from http://www.economicsonline.co.uk/Business_economics/Price_discrimination.html

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  4. Online price discrimination occurs on a national level as well as an international level. In e-commerce, price discrimination can be based on a user’s geographical location, browsing history, and operating system. Vendors abuse technology to take advantage of an unknowing consumer, giving them an unfair advantage.

    Airlines are notoriously known for price discrimination, and e-commerce has only made it easier. They are able to discriminate through a variety of factors—booking time in advance, one-way or return flights, or day of the week, to name a few. Publishers such as the New York Times also demonstrates this behavior through their offerings of content through phone, tablet, or both, including website access. Amazon is no stranger to this as you’ve pointed out in your original article. New organizations, such as Uber, are also taking advantage of price discrimination.

    It is important for the consumer to understand how businesses price discriminate and how to avoid, or at least, minimize these traps. It can be as simple as clearing one’s browser history.

    References

    Salmon, F. (2013, September 3). Why the internet is perfect for price discrimination. Retrieved from Reuters: http://blogs.reuters.com/felix-salmon/2013/09/03/why-the-internet-is-perfect-for-price-discrimination/
    Shpanya, A. (2013, May 14). Online price discrimination: a surprising reality in ecommerce. Retrieved from Econsultancy: https://econsultancy.com/blog/62699-online-price-discrimination-a-surprising-reality-in-ecommerce/

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    Replies
    1. I recently used an online hotel booking site to secure a room in Niagara Falls. The rate was $192.00 and was nonrefundable, but the company had a price match guarantee. I booked several weeks in advance because I thought this would give me a better price. On the way to the hotel, I again looked at the same travel website and to my surprise the same room was now only $78. How could that be? Clearly supply and demand. This chain wanted to fill as many rooms as they could because a paid room clearly is more profitable than an empty room.
      In contrast, I recently had to fly to Chicago for work. I had relatively short notice and a restricted window of what time I could take off because I needed to land in time for a meeting with a client. The fare was almost triple what I would have paid if I booked a month or more in advance.
      I wondered why at the airline I needed to pay drastically more, but in the hotel example I would pay drastically less for a last minute booking.
      The airline priced based upon inelastic demand. They assumed that if you are booking at the last minute you are either a business traveler or have an emergency necessitating the immediate flight and you would be willing to pay (or your company to pay) whatever the cost. However, with the hotel, if the price had tripled I would have either not gone or found a substitute at a price I could afford.
      This made me think about my perceptions and what I would reasonably expect to pay for various goods and the context in which this happens. For example, let’s take a 16 ounce bottle of soda. I would pay $1.00 in the grocery store. I would pay $2.00 at a highway rest stop. I would pay $3.00 at a concert or sporting event. Managing price expectations is as important as managing price (Krajewski, Malhotra, & Ritzman, 2016). If the price for the soda was $3.00 at the grocery store or $5.00 at the concert I would just not buy it. As a consumer, I always want to feel as if I am either getting a good deal or expecting to not get a good deal, purchasing anyway, and living with the choice. However, that only happens under irregular conditions…such as an emergency, last minute flight.
      Amazon, as you state, is no stranger to this concept either. The consumer needs to take some responsibility for getting the best deal. Even if I was a student at Harvard and there was a perception that I could pay $500 for a textbook, if I saw it online to rent for $50 what would I do? Well, I know my answer, but there are some that do whatever is convenient regardless of price and retailers like that, too.
      References

      Krajewski, L. J., Malhotra, M. K., & Ritzman, L. P. (2016). Operations management. Boston: Pearso


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