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I don't agree with the idea that giving companies better and better tools to achieve price discrimination is the win-win that the final quote seems to make it o

I don't agree with the idea that giving companies better and better tools to achieve price discrimination is the win-win that the final quote seems to make it out to be. Yes, I can see how it could allow a company to offer goods to people who otherwise would not be able to access their services, but this comes at the cost of potentially complicated usage restrictions, making it easier for incumbents to squash new competitors, and pushing for more and more of a legal framework to support this kind of business model at the expense of the end user. I can think of examples where the products are barely (if at all) worse and see how heavily it swings things in favour of the powerful incumbent: Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch. DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around. License agreements on software not to restrict specific functionality, but rather the usage scenarios. The example in the article of the slower LaserPrinter example morphs from being a physical restriction to modern printer cartridges that block ink refills via DRM. Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills. Even the recent EpiPen drama, where they want to be able to milk as much as possible out of the pockets of insurance companies, but end users don't want to play the real price, so they introduce the co-pay discount to try and offset that cost. It makes the "rich" organisation pay, but reduces the amount paid by an individual.

Retric 10y ago
The devils advocate is something like: If a game cost say 50$ they sell approximately zero of them in India. Dropping that to 5$ does not mean they sell 10x as many worldwide thus company keeps the higher price. If they can sell them for 5$ just in India they may sell 10x as many in India which is good for people in India and the Company. But, people in US are never getting 5$ disks either way. Making this a net win. The counter argument is price discrimination often operates inside a country. Coupons are the classic example, but clearly Coupons are a net economic loss. Which IMO suggests we should have limits on the kind of acceptable price discrimination.
- smallnamespace 10y ago
  > clearly Coupons are a net economic loss I'm not so sure about that. Yes, the process of printing, distributing, and using coupons is a deadweight loss to society, but the ability to price discriminate can create surplus. If the captured producer surplus were less than the cost to print and distribute coupons, then manufacturers would stop doing it. This is exactly analogous to your example with India as well. There is a deadweight loss associated with administering and enforcing regional trade barriers so that you can't just go buy the $5 Indian version of a good.
  - Retric 10y ago
    This assumes it's not a zero sum market. If a company can extract more money than it costs them to print Coupons they will do so. But, coupons may simply allow them to raise average prices without selling more or higher quality goods. Basically, if you sell the 100 widgets for 10$ that's 1,000$. But if you use coupons to sell the good for 30 widgets for 9$ and 70 widgets for 12$ at the cost of 20$ that's 1110$ - 20 = 1090$. It's the same number of sales in the second place, but your profit is higher. Thus, just because it's more profitable does not mean it's a net economic gain. Monopolies are great when they are your Monopoly.
    - smallnamespace 10y ago
      > This assumes it's not a zero sum market Economics in general is not a zero sum market. People trade because they see benefits to doing so. I buy something because the value I derive is more than the cost -- that's why economies and markets create value. We call that value 'surplus' (https://en.wikipedia.org/wiki/Economic_surplus https://en.wikipedia.org/wiki/Economic_surplus) > just because it's more profitable does not mean it's a net economic gain In the specific example you made, yes, the producer is just capturing more of the surplus, more hasn't been created. In general, price discrimination shifts surplus from consumers to producers. However, it also shifts surplus from richer buyers to poorer ones. So coupons are a benefit to the poor, and airline price discrimination benefits you if you buy 3rd class tickets. Unless you are very rich, price discrimination is generally a monetary benefit to you. Note that 3rd-degree price discrimination can increase or decrease total welfare depending on the specifics: http://www.econ.ucla.edu/hopen/econ171/monopoly2.ppt http://www.econ.ucla.edu/hopen/econ171/monopoly2.ppt (see slide 4)
gnicholas 10y ago
Good points and examples here, since the article doesn't address these common types of scenarios at all. Some are less problematic, but others do present significant issues. Here's my take: > Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch. The case law on this is mixed. the Costco-Omega case [1] was a 4-4 decision that bears no precedential weight, and is from the 9th Circuit (this means it could be cited but is not binding on lower courts). It was decided in favor of Omega, which sought to prevent importation by Costco, notwithstanding the First Sale Doctrine (which generally says that after you buy a copyrighted article, you can do what you want with it). If this were a binding case from a high court, this would be bad. It is much less unfortunate because it is not binding, and because a subsequent case from a higher court went differently. The textbook case (Kirtsaeng-Wiley) went the other way, and allowed importation [2]. This was a US Supreme Court case and was decided by a majority. So on balance, the law on this seems to impair the effectiveness of price discrimination, which is good for the consumer. This case did not overrule the Omega case, which was factually distinguishable, so this doesn't mean that there aren't still potential issues lurking. > DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around. DVD region locking, and especially the DMCA overlay, is definitely problematic. This applies equally to printer cartridge refills. The only potential benefit for consumers is that printer companies (and their analogs in other industries) can make printers less expensive, so that more people can afford them. If they couldn't lock you in to their ink cartridges, then they would have to charge more up-front. The counterargument to this is that many people don't understand the cost structure and end up locked in. Some printers even come with part-full cartridges, which is particularly deceptive. > License agreements on software not to restrict specific functionality, but rather the usage scenarios. This sort of thing can be done in "bad" ways, but it can also be done to offer academic discounts, discounts for small startups/businesses (think Slack's model). I'm not sure how one would draw the line between beneficial and nefarious applications of this model. > Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills. Completely agree—this relates to there being a monopoly in many areas, which throws everything out of whack. Consumers definitely lose here, on the whole. (This is also why I wrote this article [3] about one way to hedge this problem.) > Even the recent EpiPen drama... This is mostly a problem because of the way health insurance presents a principal-agent problem. The person making the decision (insured) is not the person paying for them (insurance company). This definitely creates problems. It is arguably a good thing that medical device/drug companies can offer discounts to lower-income folks. On the whole, not sure how to weigh the pros/cons in the medical industry generally. 1 https://en.wikipedia.org/wiki/Omega_S.A._v._Costco_Wholesale_Corp.#Impact https://en.wikipedia.org/wiki/Omega_S.A._v._Costco_Wholesale... 2 https://en.wikipedia.org/wiki/Kirtsaeng_v._John_Wiley_%26_Sons,_Inc.#Decision https://en.wikipedia.org/wiki/Kirtsaeng_v._John_Wiley_%26_So... 3 https://medium.com/@nicklum/how-my-hatred-of-comcast-drove-me-to-buy-their-stock-a17ca03a832f https://medium.com/@nicklum/how-my-hatred-of-comcast-drove-m...
grecy 10y ago
Pricing products differently in different countries is all about charging whatever people will pay for something, in order to maximize profit. Australia's minimum wage is ~$16/hr, so Adobe products, Apple, even online downloads cost a lot more than the US, because people in Australia have more money to spend. When the citizens of a country have a lot of spending money, international companies charge them more than in countries where the citizens don't have a lot of money. Viewed this way, it's really interesting to note that "stuff" (cars, laptops, phones, beer, smokes) is cheaper in America than any other developed country in the world. This is an interesting way to come to the conclusion that the average American citizen has less spending money than the average developed country citizen
- rm_-rf_slash 10y ago
  Good point, but you're leaving out the effects of taxes and regulation on prices. Cigarettes are jaw-droppingly expensive in Australia because the government wants as few people smoking as possible. The icky labels on packages don't make it very attractive either. Whereas in America, cigarettes can range in price from annoyingly pricey to cheap as dirt, especially if you buy in southern states or Native American reservations (another price distortion).
- forgetsusername 10y ago
  >American citizen has less spending money than the average developed country citizen You seem to be confusing real and nominal prices. Australian's merely have more dollars worth less, in goods, each. That's not necessarily a "good" thing. In fact, it's likely a negative.
- ojbyrne 10y ago
  The AUS minimum wage is higher, but not the per-capita mean. Stuff is cheaper in the US primarily because the market is larger, so fixed costs can be spread over more units sold. And larger markets also mean more competitition, which means companies can't as easily price discriminate. Government regulation, and the relative isolation of Australia probably contribute as well.
  - 10y ago

Retric 10y ago

The devils advocate is something like: If a game cost say 50$ they sell approximately zero of them in India. Dropping that to 5$ does not mean they sell 10x as many worldwide thus company keeps the higher price. If they can sell them for 5$ just in India they may sell 10x as many in India which is good for people in India and the Company. But, people in US are never getting 5$ disks either way. Making this a net win. The counter argument is price discrimination often operates inside a country. Coupons are the classic example, but clearly Coupons are a net economic loss. Which IMO suggests we should have limits on the kind of acceptable price discrimination.

smallnamespace 10y ago
> clearly Coupons are a net economic loss I'm not so sure about that. Yes, the process of printing, distributing, and using coupons is a deadweight loss to society, but the ability to price discriminate can create surplus. If the captured producer surplus were less than the cost to print and distribute coupons, then manufacturers would stop doing it. This is exactly analogous to your example with India as well. There is a deadweight loss associated with administering and enforcing regional trade barriers so that you can't just go buy the $5 Indian version of a good.
- Retric 10y ago
  This assumes it's not a zero sum market. If a company can extract more money than it costs them to print Coupons they will do so. But, coupons may simply allow them to raise average prices without selling more or higher quality goods. Basically, if you sell the 100 widgets for 10$ that's 1,000$. But if you use coupons to sell the good for 30 widgets for 9$ and 70 widgets for 12$ at the cost of 20$ that's 1110$ - 20 = 1090$. It's the same number of sales in the second place, but your profit is higher. Thus, just because it's more profitable does not mean it's a net economic gain. Monopolies are great when they are your Monopoly.
  - smallnamespace 10y ago
    > This assumes it's not a zero sum market Economics in general is not a zero sum market. People trade because they see benefits to doing so. I buy something because the value I derive is more than the cost -- that's why economies and markets create value. We call that value 'surplus' (https://en.wikipedia.org/wiki/Economic_surplus https://en.wikipedia.org/wiki/Economic_surplus) > just because it's more profitable does not mean it's a net economic gain In the specific example you made, yes, the producer is just capturing more of the surplus, more hasn't been created. In general, price discrimination shifts surplus from consumers to producers. However, it also shifts surplus from richer buyers to poorer ones. So coupons are a benefit to the poor, and airline price discrimination benefits you if you buy 3rd class tickets. Unless you are very rich, price discrimination is generally a monetary benefit to you. Note that 3rd-degree price discrimination can increase or decrease total welfare depending on the specifics: http://www.econ.ucla.edu/hopen/econ171/monopoly2.ppt http://www.econ.ucla.edu/hopen/econ171/monopoly2.ppt (see slide 4)

gnicholas 10y ago

Good points and examples here, since the article doesn't address these common types of scenarios at all. Some are less problematic, but others do present significant issues. Here's my take: > Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch. The case law on this is mixed. the Costco-Omega case [1] was a 4-4 decision that bears no precedential weight, and is from the 9th Circuit (this means it could be cited but is not binding on lower courts). It was decided in favor of Omega, which sought to prevent importation by Costco, notwithstanding the First Sale Doctrine (which generally says that after you buy a copyrighted article, you can do what you want with it). If this were a binding case from a high court, this would be bad. It is much less unfortunate because it is not binding, and because a subsequent case from a higher court went differently. The textbook case (Kirtsaeng-Wiley) went the other way, and allowed importation [2]. This was a US Supreme Court case and was decided by a majority. So on balance, the law on this seems to impair the effectiveness of price discrimination, which is good for the consumer. This case did not overrule the Omega case, which was factually distinguishable, so this doesn't mean that there aren't still potential issues lurking. > DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around. DVD region locking, and especially the DMCA overlay, is definitely problematic. This applies equally to printer cartridge refills. The only potential benefit for consumers is that printer companies (and their analogs in other industries) can make printers less expensive, so that more people can afford them. If they couldn't lock you in to their ink cartridges, then they would have to charge more up-front. The counterargument to this is that many people don't understand the cost structure and end up locked in. Some printers even come with part-full cartridges, which is particularly deceptive. > License agreements on software not to restrict specific functionality, but rather the usage scenarios. This sort of thing can be done in "bad" ways, but it can also be done to offer academic discounts, discounts for small startups/businesses (think Slack's model). I'm not sure how one would draw the line between beneficial and nefarious applications of this model. > Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills. Completely agree—this relates to there being a monopoly in many areas, which throws everything out of whack. Consumers definitely lose here, on the whole. (This is also why I wrote this article [3] about one way to hedge this problem.) > Even the recent EpiPen drama... This is mostly a problem because of the way health insurance presents a principal-agent problem. The person making the decision (insured) is not the person paying for them (insurance company). This definitely creates problems. It is arguably a good thing that medical device/drug companies can offer discounts to lower-income folks. On the whole, not sure how to weigh the pros/cons in the medical industry generally. 1 https://en.wikipedia.org/wiki/Omega_S.A._v._Costco_Wholesale_Corp.#Impact https://en.wikipedia.org/wiki/Omega_S.A._v._Costco_Wholesale... 2 https://en.wikipedia.org/wiki/Kirtsaeng_v._John_Wiley_%26_Sons,_Inc.#Decision https://en.wikipedia.org/wiki/Kirtsaeng_v._John_Wiley_%26_So... 3 https://medium.com/@nicklum/how-my-hatred-of-comcast-drove-me-to-buy-their-stock-a17ca03a832f https://medium.com/@nicklum/how-my-hatred-of-comcast-drove-m...

grecy 10y ago

Pricing products differently in different countries is all about charging whatever people will pay for something, in order to maximize profit. Australia's minimum wage is ~$16/hr, so Adobe products, Apple, even online downloads cost a lot more than the US, because people in Australia have more money to spend. When the citizens of a country have a lot of spending money, international companies charge them more than in countries where the citizens don't have a lot of money. Viewed this way, it's really interesting to note that "stuff" (cars, laptops, phones, beer, smokes) is cheaper in America than any other developed country in the world. This is an interesting way to come to the conclusion that the average American citizen has less spending money than the average developed country citizen

rm_-rf_slash 10y ago
Good point, but you're leaving out the effects of taxes and regulation on prices. Cigarettes are jaw-droppingly expensive in Australia because the government wants as few people smoking as possible. The icky labels on packages don't make it very attractive either. Whereas in America, cigarettes can range in price from annoyingly pricey to cheap as dirt, especially if you buy in southern states or Native American reservations (another price distortion).
forgetsusername 10y ago
>American citizen has less spending money than the average developed country citizen You seem to be confusing real and nominal prices. Australian's merely have more dollars worth less, in goods, each. That's not necessarily a "good" thing. In fact, it's likely a negative.
ojbyrne 10y ago
The AUS minimum wage is higher, but not the per-capita mean. Stuff is cheaper in the US primarily because the market is larger, so fixed costs can be spread over more units sold. And larger markets also mean more competitition, which means companies can't as easily price discriminate. Government regulation, and the relative isolation of Australia probably contribute as well.
- 10y ago