3 ms·
"Cheaper prices to poorer people" is the exact same thing as "more expensive prices to richer people". Even if the item is "kept at the same price" and poor pe
by Jiro 3y ago
"Cheaper prices to poorer people" is the exact same thing as "more expensive prices to richer people".
Even if the item is "kept at the same price" and poor people get a "discount", the market will still determine which price produces maximum profit. In the long run, it will be more profitable to raise the rich man's price than it would have been if they had to raise a price that was paid by everyone. So in the long run they'll converge on a value which means that the rich pay more, not just that the poor pay less.
(And yes, this applies to coupons, sales, and other forms of price discrimination as well. If coupons were made illegal, and having the coupon actually helped the retailer in the first place, the non-coupon price would be too high for maximum profit and retailers would be forced by the market to lower prices.)
- amadeuspagel 3y agoSure. As long as the poor pay less, that still seems good.
- genman 3y agoSome definition of "rich" and some definition of "poor" and if "the rich" can afford the same level of products and services then are they really rich?
- derf_ 3y agoA great way to visualize this is by looking at the "consumer surplus", the red region in this graph: https://en.wikipedia.org/wiki/Economic_surplus#/media/File:Economic-surpluses.svg https://en.wikipedia.org/wiki/Economic_surplus#/media/File:E... [1] The value created by a sale, i.e., the difference between what something costs to produce and what someone is willing to pay for it, can be divided into producer surplus and consumer surplus, i.e., the benefit that accrues to the producer and the consumer, respectively, at a given price point. Price discrimination is an attempt to convert consumer surplus into producer surplus by charging individuals a price closer to what they are willing to pay. The blue region gets bigger (producer profit increases) and the red region gets smaller. Price discrimination requires market power in order to set prices higher than the equilibrium price (that is, it cannot happen if there is perfect competition). With market power but without price discrimination, producers maximize profit by charging a "monopoly price" higher than the competitive equilibrium price. So there will already be a wedge on the right hand side of the economic surplus region missing, as shown in this graph: https://en.wikipedia.org/wiki/Deadweight_loss#/media/File:Tax_deadweight.gif https://en.wikipedia.org/wiki/Deadweight_loss#/media/File:Ta... (the labels are for taxes, but the math is the same for monopoly pricing) [2]. Price discrimination may recapture some of that "deadweight loss" (selling to some consumers at cheaper prices than they would with a uniform monopoly price), but again producers will take more of it than they would in a competitive market, and they do not create any value that would not have existed in said competitive market (selling to any consumer at a price lower than the competitive equilibrium point is unprofitable by definition, so producers will do their best to avoid it). Looked at in this way, it is easy to see that consumers end up worse off overall than they would in a competitive market with a uniform market price. [1] From https://en.wikipedia.org/wiki/Economic_surplus#Consumer_surplus https://en.wikipedia.org/wiki/Economic_surplus#Consumer_surp... [2] From https://en.wikipedia.org/wiki/Deadweight_loss https://en.wikipedia.org/wiki/Deadweight_loss