6 ms·

>The common rebuttal is: "You are making the mistake of calculating on the Margin, you forgot to calculate E Fixed Costs" An even better rebuttal is: "Price is

by danssig 15y ago

>The common rebuttal is: "You are making the mistake of calculating on the Margin, you forgot to calculate E Fixed Costs" An even better rebuttal is: "Price is not: (what it costs) + 1, it is the perceived value of the product/service. Costs have nothing to do with it besides deciding the pricing floor".

gmac 15y ago
In an economics textbook, yes. But in reality people have a notion of fairness, and this influences behaviour. For example, see this American Economic Review paper: http://www.lrz.de/~u516262/webserver/webdata/rabin1993_incorporatingfairness_aer.pdf http://www.lrz.de/~u516262/webserver/webdata/rabin1993_incor... Anecdotally, this kind of what-it-costs consideration certainly influences my behaviour. For instance, Easyjet doesn't pre-allocate seats on its planes, and offers 'speedy boarding' for something like £15 ($25). This means you get to board before those who didn't buy it (and, incidentally, sets up a game theoretic-type problem, in that it's only worth buying if enough others don't buy). Irrespective of the value of this to me, I on principle never buy it. In fact, the very fact that they offer to take £15 off my hands for something that's transparently and utterly free to them lowers my opinion of them as a company. (Note: obviously the price is set to engineer scarcity -- it wouldn't work if they charged £1 -- and from a rational/economic perspective it's a brilliant little wheeze).
- billybob 15y ago
  This. The glaring assumption of economics is that people are rational. We are not, entirely.
  - rufibarbatus 15y ago
    I remember arguing extensively with a friend about this. Whenever I switch plans, I demand free, unlimited SMS (local and international), and it doesn't take much bargaining to get it. This friend of mine from another country had to pay to receive text messages from anyone (myself included at a premium, for texting him from abroad), which I consider downright apalling. I told him to negotiate a better deal or to switch providers because he was being blatantly ripped off, and no: he argued quite religiously that doing so would be promoting low standards, and that commodizing his phone service was the last thing he could ever possibly want (no further reason given). When I argued that I was just trying to be helpful, he accused me of being a nonconformist (as if the expression is inherently derrogatory) and started ranting about how little grasp of economics I have. (At which point I lost my temper to because, as XKCD quite nicely has it [1], someone was wrong on the internet.) [1] http://xkcd.com/386/ http://xkcd.com/386/
    - cxseven 15y ago
      Hello, I am curious what kind of leverage you had while negotiating free SMS. How much do you pay per month? Also, how do frame your request / get to speak to the right person?
      - rufibarbatus 15y ago
        On your front, you have leverage because you have options. (Well, assuming there is a reasonable number of carriers in your region.) In terms of demand, by default, they want you more than you want them, especially if you're switching carriers like I was, in which case your BATNA is not to switch. On their front, they need to generate demand for their service. If by offering me for free something which has zero marginal cost to them they can achieve so, then of course they'll do that. I was very explicit about that: I didn't want a new carrier, I wanted a carrier which offered me free SMS. If they didn't have that, I bid them a good day. It was no use trying to buy that plan at the store, and it did take me a couple calls to the same carrier to get everything as I wanted. There were a couple other perks I wanted, but those were negotiated into a non-refundable monthly floor payment + additional charges if I exceeded my quotas. The plan (serving two people) had: 1 GB 3G internet access, 500 minutes/month of calls shared between me and my s/o, plus another 500 minutes/month for calls from one of us to the other. National long distance calls charged local call prices. Any excess in minutes or GB is charged additionally. This makes for R$ 140/month (R$ 70 each). With wi-fi becoming increasingly fast and hotspots increasingly common, this was probably a bad deal on the long term. I guess you should never bet against people who know their trade. :-)

by danssig 15y ago

gmac 15y ago

In an economics textbook, yes. But in reality people have a notion of fairness, and this influences behaviour. For example, see this American Economic Review paper: http://www.lrz.de/~u516262/webserver/webdata/rabin1993_incorporatingfairness_aer.pdf http://www.lrz.de/~u516262/webserver/webdata/rabin1993_incor... Anecdotally, this kind of what-it-costs consideration certainly influences my behaviour. For instance, Easyjet doesn't pre-allocate seats on its planes, and offers 'speedy boarding' for something like £15 ($25). This means you get to board before those who didn't buy it (and, incidentally, sets up a game theoretic-type problem, in that it's only worth buying if enough others don't buy). Irrespective of the value of this to me, I on principle never buy it. In fact, the very fact that they offer to take £15 off my hands for something that's transparently and utterly free to them lowers my opinion of them as a company. (Note: obviously the price is set to engineer scarcity -- it wouldn't work if they charged £1 -- and from a rational/economic perspective it's a brilliant little wheeze).

billybob 15y ago
This. The glaring assumption of economics is that people are rational. We are not, entirely.
- rufibarbatus 15y ago
  I remember arguing extensively with a friend about this. Whenever I switch plans, I demand free, unlimited SMS (local and international), and it doesn't take much bargaining to get it. This friend of mine from another country had to pay to receive text messages from anyone (myself included at a premium, for texting him from abroad), which I consider downright apalling. I told him to negotiate a better deal or to switch providers because he was being blatantly ripped off, and no: he argued quite religiously that doing so would be promoting low standards, and that commodizing his phone service was the last thing he could ever possibly want (no further reason given). When I argued that I was just trying to be helpful, he accused me of being a nonconformist (as if the expression is inherently derrogatory) and started ranting about how little grasp of economics I have. (At which point I lost my temper to because, as XKCD quite nicely has it [1], someone was wrong on the internet.) [1] http://xkcd.com/386/ http://xkcd.com/386/
  - cxseven 15y ago
    Hello, I am curious what kind of leverage you had while negotiating free SMS. How much do you pay per month? Also, how do frame your request / get to speak to the right person?
    - rufibarbatus 15y ago
      On your front, you have leverage because you have options. (Well, assuming there is a reasonable number of carriers in your region.) In terms of demand, by default, they want you more than you want them, especially if you're switching carriers like I was, in which case your BATNA is not to switch. On their front, they need to generate demand for their service. If by offering me for free something which has zero marginal cost to them they can achieve so, then of course they'll do that. I was very explicit about that: I didn't want a new carrier, I wanted a carrier which offered me free SMS. If they didn't have that, I bid them a good day. It was no use trying to buy that plan at the store, and it did take me a couple calls to the same carrier to get everything as I wanted. There were a couple other perks I wanted, but those were negotiated into a non-refundable monthly floor payment + additional charges if I exceeded my quotas. The plan (serving two people) had: 1 GB 3G internet access, 500 minutes/month of calls shared between me and my s/o, plus another 500 minutes/month for calls from one of us to the other. National long distance calls charged local call prices. Any excess in minutes or GB is charged additionally. This makes for R$ 140/month (R$ 70 each). With wi-fi becoming increasingly fast and hotspots increasingly common, this was probably a bad deal on the long term. I guess you should never bet against people who know their trade. :-)