![]() ![]() However, such an interpretation would disregard the greater minimum willingness of producers to sell their services at those times of the night. When a lot of people in the same area are requesting rides at the same time, trip prices might be higher than normal… You can wait a few minutes while more drivers get on the road, or you can pay a little extra to get a ride when you need it.Īrguably, the cost of transportation does not increase at 1am every night, and Uber’s “surge pricing” could be interpreted as an example of inter-temporal price discrimination. Indeed, Uber justifies its higher prices with the following statement on its website: Uber’s “surge pricing” mechanism is often regarded as an example of a peak-load pricing system. Thus, under such pricing models, neither the consumer nor the producer surplus can be improved. Instead, higher prices reflect the higher costs of production when the capacity to produce/supply is constrained. Crucially, peak-load pricing models do not exploit differences in consumer willingness to pay. Peak-load pricingīut, what about scenarios where the cost of producing a good changes with the level of demand? Such a pricing strategy is known as peak-load pricing. Consequently, the consumer surplus is replaced by gains in producer surplus. ![]() Regardless of the justification, this form of inter-temporal price discrimination is founded on differences in consumer willingness to pay. If you book your ticket late, chances are you are desperate to fly and therefore don’t mind paying a little more. As Air Asia explains in a refreshingly honest manner: Airlines are well known for such pricing strategies the cost of flying is set at a certain price, but the actual price charged to the consumer changes drastically over different time periods. If the cost of producing a certain good remains the same over time and the seller charges different prices, this is known as inter-temporal price discrimination. Most price discrimination models seek to maximise revenue by charging higher prices to those who are willing to pay. However, what would have been $7.50 of consumer surplus to John has now been handed over to the vendor in the form of producer surplus. If the vendor is aware of John’s higher willingness to buy, the selling option is clear John wins out. ![]() For example, if John and Jill enter a bid over a bottle of water and John has just finished running a marathon, John may be willing to pay $10 while Jill may only be willing to pay the standard $2.50. Conversely, the difference between a producer’s minimum willingness to sell and the actual selling price represents the producer surplus, or the producer’s satisfaction with the transaction price.īy virtue of differing circumstances and preferences, different consumers will not exhibit the same willingness to buy. The difference between a consumer’s maximum willingness to buy and the actual price paid represents the consumer surplus, or the consumer’s satisfaction with the transaction price. A transaction will only take place when the consumer’s maximum willingness to buy is greater than the seller’s minimum willingness to sell. For any product, consumers will have a maximum willingness to buy and producers will have a minimum willingness to sell. What is price discrimination?īefore we can talk about price discrimination, we must firstly look at the fundamental tension between sellers and buyers in the price-setting process. Indeed, this article will go about demonstrating how price discrimination can be used to benefit consumers, producers, and even the environment. However, benevolent price discrimination does exist. The practice of varying the price for a product or service to reflect changing market conditions, in particular in times of greater demand.Īt first glance, the notion of charging different prices for the same product seems to undermine the idea of fairness in the market. More recently, we have learned that the Queensland Performing Arts Centre is investigating so-called dynamic pricing, which it defines as: The likes of Uber, Airbnb and other ecommerce platforms have re-energised discussion about price discrimination strategies. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |