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> 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 soc

> 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)
  - AnthonyMouse 10y ago
    > Unless you are very rich, price discrimination is generally a monetary benefit to you. You're not accounting for the deadweight loss from the crippled product. Suppose if there were no coupons the product would cost $20 to everyone, vs. when coupons are used it costs $15 with coupon or $30 without. But using the coupon requires an hour worth of labor on the part of the customer. So the rich customer pays the $30 and the poor customer pays the $15 + $10 worth of labor. Compared to the case with no price discrimination, the rich customer pays $10 more and the poor customer pays $5 more. Neither customer is ahead, only the seller is. Likewise with crippled products, if the full version of the product was available for $20 to everyone then the poor customer may get $25 worth of value from it and have a $5 surplus. Making the full version $30 and the crippled version $15 means the poor customer won't buy the full version, but the crippled version may only provide $16 worth of value, so now the poor customer's surplus is down to $1 from $5. You're also assuming price discrimination costs the rich more than the poor. But volume licensing and bulk discounts are a form of price discrimination. In the limit where the seller can engage in perfect price discrimination, the seller captures ~100% of the consumer surplus from all consumers, which is obviously worse for every consumer than any case where the consumer gets to keep any part of the surplus.
    - smallnamespace 10y ago
      Sure, you can always find parameters where one party or another is hurt, because the parameter space is very large. For example, without the excess profits provided by price discrimination, a company may decide a market is simply too small to serve, in which case all surplus is lost. Also, the baseline for comparing a crippled product is not necessarily the same but uncrippled product. If a manufacturer knows crippling is unavailable, they may just develop the reduced feature set entirely, in which case rich consumers are hurt. Microeconomic theory can be subtle, and whether something is good or bad depends very much in the specific case.
      - AnthonyMouse 10y ago
        > Also, the baseline for comparing a crippled product is not necessarily the same but uncrippled product. Conversely, the baseline for the lower priced product is not necessarily lower than the existing product. If the full version is currently $50, the profit-maximizing strategy could be to sell a crippled version for $50 and the full version for $500, leading to more profit for the seller but less surplus overall. > Microeconomic theory can be subtle, and whether something is good or bad depends very much in the specific case. That's what I'm saying. Your argument was that price discrimination generally helps the poor. But it only does when the specific method of price discrimination happens to do that entirely by accident -- if it happens it's because the seller set the price of the lower cost version at less than they actually needed to, or didn't cripple it as much as they could have which would have increased sales of the more expensive version. The one thing price discrimination is designed to do is convert consumer surplus into producer surplus. Which in general is not good for the consumer.
ChoHag 10y ago
If manufacturers knew that the captured producer surplus were less than the cost to print and distribute coupons, then manufacturers would stop doing it.

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)
- AnthonyMouse 10y ago
  > Unless you are very rich, price discrimination is generally a monetary benefit to you. You're not accounting for the deadweight loss from the crippled product. Suppose if there were no coupons the product would cost $20 to everyone, vs. when coupons are used it costs $15 with coupon or $30 without. But using the coupon requires an hour worth of labor on the part of the customer. So the rich customer pays the $30 and the poor customer pays the $15 + $10 worth of labor. Compared to the case with no price discrimination, the rich customer pays $10 more and the poor customer pays $5 more. Neither customer is ahead, only the seller is. Likewise with crippled products, if the full version of the product was available for $20 to everyone then the poor customer may get $25 worth of value from it and have a $5 surplus. Making the full version $30 and the crippled version $15 means the poor customer won't buy the full version, but the crippled version may only provide $16 worth of value, so now the poor customer's surplus is down to $1 from $5. You're also assuming price discrimination costs the rich more than the poor. But volume licensing and bulk discounts are a form of price discrimination. In the limit where the seller can engage in perfect price discrimination, the seller captures ~100% of the consumer surplus from all consumers, which is obviously worse for every consumer than any case where the consumer gets to keep any part of the surplus.
  - smallnamespace 10y ago
    Sure, you can always find parameters where one party or another is hurt, because the parameter space is very large. For example, without the excess profits provided by price discrimination, a company may decide a market is simply too small to serve, in which case all surplus is lost. Also, the baseline for comparing a crippled product is not necessarily the same but uncrippled product. If a manufacturer knows crippling is unavailable, they may just develop the reduced feature set entirely, in which case rich consumers are hurt. Microeconomic theory can be subtle, and whether something is good or bad depends very much in the specific case.
    - AnthonyMouse 10y ago
      > Also, the baseline for comparing a crippled product is not necessarily the same but uncrippled product. Conversely, the baseline for the lower priced product is not necessarily lower than the existing product. If the full version is currently $50, the profit-maximizing strategy could be to sell a crippled version for $50 and the full version for $500, leading to more profit for the seller but less surplus overall. > Microeconomic theory can be subtle, and whether something is good or bad depends very much in the specific case. That's what I'm saying. Your argument was that price discrimination generally helps the poor. But it only does when the specific method of price discrimination happens to do that entirely by accident -- if it happens it's because the seller set the price of the lower cost version at less than they actually needed to, or didn't cripple it as much as they could have which would have increased sales of the more expensive version. The one thing price discrimination is designed to do is convert consumer surplus into producer surplus. Which in general is not good for the consumer.

ChoHag 10y ago

If manufacturers knew that the captured producer surplus were less than the cost to print and distribute coupons, then manufacturers would stop doing it.