Costco's Price Discrimination

There is a great episode of the Acquired podcast about the Costco business model. It is three hours long and full of history, anecdotes, and, importantly, lots of business insights. One is just how important two-part pricing is to their business model. Customer/members pay an annual membership fees to pay much lower prices. Costco limits product markups to 14% when the standard for traditional retailers is 100%. This means that 70% of the net income is from memberships and only 30% is from retailing. Another is how scale economies feature throughout their operations, from pallets on the floor to the Kirkland Signature brand. Their low margins and scale economies are meant to deliver huge consumer surpluses that they then extract with the membership fee.