4 ms·

I'm not entirely surprised but I don't see where's the incentive for them to behave like this. They double the lines they must carry and are surely to some degr

I'm not entirely surprised but I don't see where's the incentive for them to behave like this. They double the lines they must carry and are surely to some degree both undercutting themselves and overcharging so reducing sales. Surely they could achieve better results with a mid-range pricing and labelling?

ra 16y ago
Big supermarkets also lease shelf space. So they are competing with their leasees products in two different segments.
rmc 16y ago
* I don't see where's the incentive for them to behave like this.* They almost certainly get more money. They are selling the budget chickens to the budget customers at a profit. They are getting the same chickens at a larger profit to other people.
yayadarsh 16y ago
When firms offer price discrimination (that's what this is called formally, offering different prices to various classes of consumer) they are making more money by taking the consumer surplus that would have been made (the extra money a consumer would have paid for the good). Think of it this way: a rich man is willing to pay up to $10.00 for the chicken breast that his family needs for dinner, but his blue-collar cousin can only afford $6.00 at the most. Had the grocery store only created one line with the price of $8.00, their revenue from these two consumers would be only the rich man's sale, 8 dollars. If, on the other hand, the store had two lines, one for $5 and one for $10, they can make 15 dollars from these two shoppers! Hope that clears it up.
- eftpotrm 16y ago
  No, I'm aware of the theory, I'm just not at all convinced it actually works out anything like this in practice - particularly once the extra costs of carrying the same line artificially twice are factored in. Oh well - they know their business but it still sounds fishy to me!

4 ms·

I'm not entirely surprised but I don't see where's the incentive for them to behave like this. They double the lines they must carry and are surely to some degr

by eftpotrm 16y ago

ra 16y ago
Big supermarkets also lease shelf space. So they are competing with their leasees products in two different segments.
rmc 16y ago
* I don't see where's the incentive for them to behave like this.* They almost certainly get more money. They are selling the budget chickens to the budget customers at a profit. They are getting the same chickens at a larger profit to other people.
yayadarsh 16y ago
When firms offer price discrimination (that's what this is called formally, offering different prices to various classes of consumer) they are making more money by taking the consumer surplus that would have been made (the extra money a consumer would have paid for the good). Think of it this way: a rich man is willing to pay up to $10.00 for the chicken breast that his family needs for dinner, but his blue-collar cousin can only afford $6.00 at the most. Had the grocery store only created one line with the price of $8.00, their revenue from these two consumers would be only the rich man's sale, 8 dollars. If, on the other hand, the store had two lines, one for $5 and one for $10, they can make 15 dollars from these two shoppers! Hope that clears it up.
- eftpotrm 16y ago
  No, I'm aware of the theory, I'm just not at all convinced it actually works out anything like this in practice - particularly once the extra costs of carrying the same line artificially twice are factored in. Oh well - they know their business but it still sounds fishy to me!