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Isn't the conclusion trivial? With perfect price discrimination, every buyer exposes their exact utility gain from buying the product, that's the price they'll

Isn't the conclusion trivial? With perfect price discrimination, every buyer exposes their exact utility gain from buying the product, that's the price they'll pay for it. Of course the resource will be allocated optimally. Naturally in this situation only the seller will benefit from the transaction. Everyone else is +-0. Utility/"welfare" is maximized but consumers get none of it. And of course, in the end even talking about utility assumes the price someone is willing to pay reflects their utility gain. This is the most fundamental assumption in economics, but it's pretty clear that in the real world this is not the case. Especially for luxury goods such as air travel.

lotsofpulp 5y ago
> And of course, in the end even talking about utility assumes the price someone is willing to pay reflects their utility gain. This is the most fundamental assumption in economics, but it's pretty clear that in the real world this is not the case. Especially for luxury goods such as air travel. Why? I would expect luxury goods to reflect utility very accurately since they are not necessary purchases. If you are paying $1k to go travel to Disney World, then that seems like a pretty good signal that the flight to Disney World gave you at least $1k worth of utility.
- geysersam 5y ago
  Does the $1k to go to Disney land buy the same utility as the $1k average yearly income in Bangladesh? Or the utility a 80th percentile household in the US could buy for the same amount.
  - lotsofpulp 5y ago
    I have never heard of utility to be used as an objective measure. It is subjective, symbolizing an individual’s (perceived) value of a transaction relative to other possible transactions. https://en.wikipedia.org/wiki/Utility https://en.wikipedia.org/wiki/Utility > a utility function that represents a single consumer's preference ordering over a choice set but is not comparable across consumers. This concept of utility is personal and based on choice
    - solveit 5y ago
      Philosophers spend a lot of time trying to figure out a way to define an objective measure of utility that can be compared across different people. This is necessary for many formulations of utilitarianism. And probably many HN commenters are more familiar with the word in this context. That economists use the same word with a much more limited scope does tend to detract from discussions like this, I feel.
      - lotsofpulp 5y ago
        This discussion is specifically about economics, linked to an article in a prominent economics publication.
    - geysersam 5y ago
      The paper talks about maximizing "welfare" what is that if not an objective measure of utility?
    - geysersam 5y ago
      Of course utility is used as an objective measure. That's the basic foundation of utilitarianism, and utilitarianism is the ethical foundation of market economics.
  - solveit 5y ago
    > even talking about utility assumes the price someone is willing to pay reflects their utility gain It does. It reflects their utility gain relative to the utility they gain by spending that money somewhere else, or just keeping the money for the future. People not made of straw do not generally believe that the price someone is willing to pay reflects somebody else's utility. Nor are they unaware of the tendency for marginal utility to decrease.
notahacker 5y ago
It's nontrivial because the price discrimination isn't perfect, and the paper looks at a number of secondary considerations (most notably the assumption that pricing dynamicalkly purely based on how far in advance bookings are made captures the difference between a class of business travellers who prefer a situation in which they have to pay even higher prices to ensure seats are available with a day or two's notice, and leisure travellers whose flexibility around travel dates means they care more about price than availability of the lowest price tickets) I do agree that it's unremarkable that price discrimination results in higher total welfare than uniform prices though, and all the other conclusions are completely in line with expectations. Its also the case that the airline's own price discrimination models will be more sophisticated with access to better (commercially sensitive) data than this stylised version
DiggyJohnson 5y ago
I think you might find lots of economics results to be “trivial”, because the results do not contain the value of the work. Constructing a model, linking it to reality, and finding that it fits our expectations (captured in the “trivial conclusion”) and is robust to secondary factors is what’s valuable. Think about the study of inflation. I’m sure lots of work has been done to show how low interest rates have impacted inflation. I won’t be surprised when they show how these interest rates have led to increased inflation, but I’ll be interested in the mechanics and model leading to the unsurprising result.

lotsofpulp 5y ago

> And of course, in the end even talking about utility assumes the price someone is willing to pay reflects their utility gain. This is the most fundamental assumption in economics, but it's pretty clear that in the real world this is not the case. Especially for luxury goods such as air travel. Why? I would expect luxury goods to reflect utility very accurately since they are not necessary purchases. If you are paying $1k to go travel to Disney World, then that seems like a pretty good signal that the flight to Disney World gave you at least $1k worth of utility.

geysersam 5y ago
Does the $1k to go to Disney land buy the same utility as the $1k average yearly income in Bangladesh? Or the utility a 80th percentile household in the US could buy for the same amount.
- lotsofpulp 5y ago
  I have never heard of utility to be used as an objective measure. It is subjective, symbolizing an individual’s (perceived) value of a transaction relative to other possible transactions. https://en.wikipedia.org/wiki/Utility https://en.wikipedia.org/wiki/Utility > a utility function that represents a single consumer's preference ordering over a choice set but is not comparable across consumers. This concept of utility is personal and based on choice
  - solveit 5y ago
    Philosophers spend a lot of time trying to figure out a way to define an objective measure of utility that can be compared across different people. This is necessary for many formulations of utilitarianism. And probably many HN commenters are more familiar with the word in this context. That economists use the same word with a much more limited scope does tend to detract from discussions like this, I feel.
    - lotsofpulp 5y ago
      This discussion is specifically about economics, linked to an article in a prominent economics publication.
  - geysersam 5y ago
    The paper talks about maximizing "welfare" what is that if not an objective measure of utility?
  - geysersam 5y ago
    Of course utility is used as an objective measure. That's the basic foundation of utilitarianism, and utilitarianism is the ethical foundation of market economics.
- solveit 5y ago
  > even talking about utility assumes the price someone is willing to pay reflects their utility gain It does. It reflects their utility gain relative to the utility they gain by spending that money somewhere else, or just keeping the money for the future. People not made of straw do not generally believe that the price someone is willing to pay reflects somebody else's utility. Nor are they unaware of the tendency for marginal utility to decrease.

notahacker 5y ago

It's nontrivial because the price discrimination isn't perfect, and the paper looks at a number of secondary considerations (most notably the assumption that pricing dynamicalkly purely based on how far in advance bookings are made captures the difference between a class of business travellers who prefer a situation in which they have to pay even higher prices to ensure seats are available with a day or two's notice, and leisure travellers whose flexibility around travel dates means they care more about price than availability of the lowest price tickets) I do agree that it's unremarkable that price discrimination results in higher total welfare than uniform prices though, and all the other conclusions are completely in line with expectations. Its also the case that the airline's own price discrimination models will be more sophisticated with access to better (commercially sensitive) data than this stylised version

DiggyJohnson 5y ago

I think you might find lots of economics results to be “trivial”, because the results do not contain the value of the work. Constructing a model, linking it to reality, and finding that it fits our expectations (captured in the “trivial conclusion”) and is robust to secondary factors is what’s valuable. Think about the study of inflation. I’m sure lots of work has been done to show how low interest rates have impacted inflation. I won’t be surprised when they show how these interest rates have led to increased inflation, but I’ll be interested in the mechanics and model leading to the unsurprising result.