4 ms·

Economics 101: If your goods cost $C to produce, and person A will buy them for $C + $5, and person B will buy them for $C + $8, you will sell two copies at $C

by csense 14y ago

Economics 101: If your goods cost $C to produce, and person A will buy them for $C + $5, and person B will buy them for $C + $8, you will sell two copies at $C + $5 for a maximum profit of $10. (If you try raising your prices above this point, you'll make less because your sales volume will go down due to B leaving the market.) But if you can price-discriminate -- figure out how much each customer is willing (or able) to pay and charge exactly that much -- you can set A's price at $C + $8 and set B's price at $C + $5 and make $13 instead. The publisher's doing exactly this sort of price discrimination: American customers are much wealthier than Thai customers, and willing/able to pay more, so they charge more. The crucial point of this analysis, however, is that the seller is still able to make a profit at the lower price level; it's just a smaller profit. So a ruling against the publisher won't greatly harm them; they'll still be able to profitably sell their books. However, a ruling in favor of the publisher will make it much more complicated for people to determine the restrictions in effect on their property, make their books available to fewer people, and generally stifle economic activity.

exit 14y ago
at the end of your first paragraph, shouldn't you say 'person a' leaves the market, not b?
vec 14y ago
Books don't cost $C/book to produce, they additionally cost $X to research, write, market, etc. And $X is much much larger than $C. So to take your example, assuming X=12 and C=1, if I sell my books for $6 and $9, respectively, I make $1 profit, but if I'm forced to sell them both at $6 I lose $2. Price discrimination is often a Good Thing, on balance. The takeaway from allowing price discrimination isn't (mainly) that Americans get gouged, it's that Thai students get access to textbooks they wouldn't otherwise be able to afford.
- Someone 14y ago
  There are two sides to it: the Thai student gets the book at a lower price, and the US student gets it at a higher price, and the two may not balance out. In your example, a publisher might sell 2M copies of that X=12M book, 1M for $6 each in Thailand and 1M in the US for $100 each, making a huge margin of (106-12)/12=785%. In a free market competition should decrease that margin. However, the markets for books isn't entirely a free one. For many books, competitors cannot make close enough clones to actually compete (Harry Potter and fifty shades of grey inspired 'clones' aren't really clones; a physics textbook may have the same content, but it cannot have the exact same presentation order, questions, etc) The publishers argue that will be offset by other books that also cost them X=12M of which they sell, say, 10K in Thailand for $6 and 10K in the US for $100 at a huge loss. There probably is truth in that, but should one try and enforce that through regulation? If so, how? Prescribe that publishers can make at most x% on every dollar they spend at a printer every year? That would likely make them find more expensive printers for their US wares.
- darkarmani 14y ago
  > The takeaway from allowing price discrimination isn't (mainly) that Americans get gouged, First of all, no one is talking about disallowing price discrimination. You can always price your books however you'd like. The argument is whether the Federal Government should be involved with providing the artificial means to price discrimination for a specific industry. > it's that Thai students get access to textbooks they wouldn't otherwise be able to afford. How do you know this? If there is a viability for local publishers in Thailand you'd never know it, because US publishers can compete unfairly with them by subsidizing their Thai sales with large US margins. If US publishers had healthy international competition, the Thai students would be better served. How is this not unfair dumping into the international scene?
benmmurphy 14y ago
there are fixed costs to producing the book so it is possible that without price discrimination it would not be possible to sell the book to Thai customers in which case the inability of the company to price discriminate decreases social efficiency. For example say the book costs $1 per copy to produce and $10 of fixed costs. There are two customers who are willing to buy the book. The American customer is willing to pay $12 for the book and the Thai customer is willing to pay $4 for the book. With price discrimination the publisher sells both books. One to the Thai for $3 marginal profit and one to the American for $11 marginal profit. For a total profit of $4 after fixed costs. If the publisher cannot price discriminate then they just sell to the American for $11 marginal profit for a total profit of $1 and the Thai person doesn't get a book :( The wiki page on Price Discrimination says the social efficiency impact is unclear (http://en.wikipedia.org/wiki/Price_discrimination http://en.wikipedia.org/wiki/Price_discrimination). Maybe it makes us better off. Maybe it doesn't.

by csense 14y ago

exit 14y ago

at the end of your first paragraph, shouldn't you say 'person a' leaves the market, not b?

vec 14y ago

Books don't cost $C/book to produce, they additionally cost $X to research, write, market, etc. And $X is much much larger than $C. So to take your example, assuming X=12 and C=1, if I sell my books for $6 and $9, respectively, I make $1 profit, but if I'm forced to sell them both at $6 I lose $2. Price discrimination is often a Good Thing, on balance. The takeaway from allowing price discrimination isn't (mainly) that Americans get gouged, it's that Thai students get access to textbooks they wouldn't otherwise be able to afford.

Someone 14y ago
There are two sides to it: the Thai student gets the book at a lower price, and the US student gets it at a higher price, and the two may not balance out. In your example, a publisher might sell 2M copies of that X=12M book, 1M for $6 each in Thailand and 1M in the US for $100 each, making a huge margin of (106-12)/12=785%. In a free market competition should decrease that margin. However, the markets for books isn't entirely a free one. For many books, competitors cannot make close enough clones to actually compete (Harry Potter and fifty shades of grey inspired 'clones' aren't really clones; a physics textbook may have the same content, but it cannot have the exact same presentation order, questions, etc) The publishers argue that will be offset by other books that also cost them X=12M of which they sell, say, 10K in Thailand for $6 and 10K in the US for $100 at a huge loss. There probably is truth in that, but should one try and enforce that through regulation? If so, how? Prescribe that publishers can make at most x% on every dollar they spend at a printer every year? That would likely make them find more expensive printers for their US wares.
darkarmani 14y ago
> The takeaway from allowing price discrimination isn't (mainly) that Americans get gouged, First of all, no one is talking about disallowing price discrimination. You can always price your books however you'd like. The argument is whether the Federal Government should be involved with providing the artificial means to price discrimination for a specific industry. > it's that Thai students get access to textbooks they wouldn't otherwise be able to afford. How do you know this? If there is a viability for local publishers in Thailand you'd never know it, because US publishers can compete unfairly with them by subsidizing their Thai sales with large US margins. If US publishers had healthy international competition, the Thai students would be better served. How is this not unfair dumping into the international scene?

benmmurphy 14y ago

there are fixed costs to producing the book so it is possible that without price discrimination it would not be possible to sell the book to Thai customers in which case the inability of the company to price discriminate decreases social efficiency. For example say the book costs $1 per copy to produce and $10 of fixed costs. There are two customers who are willing to buy the book. The American customer is willing to pay $12 for the book and the Thai customer is willing to pay $4 for the book. With price discrimination the publisher sells both books. One to the Thai for $3 marginal profit and one to the American for $11 marginal profit. For a total profit of $4 after fixed costs. If the publisher cannot price discriminate then they just sell to the American for $11 marginal profit for a total profit of $1 and the Thai person doesn't get a book :( The wiki page on Price Discrimination says the social efficiency impact is unclear (http://en.wikipedia.org/wiki/Price_discrimination http://en.wikipedia.org/wiki/Price_discrimination). Maybe it makes us better off. Maybe it doesn't.