Price Discrimination Lowers Overall Prices; But Still Pisses People Off
from the is-it-worth-it dept
Why does it cost $100 more to order a black laptop from Apple than a white one, even though they cost the company the same amount to make? Yes, the black one may look cooler; that’s part of it, but there’s more. Such a pricing mechanism actually allows Apple to distribute the cost of new product development in a more fair manner. Instead of thinking about the black laptop as costing $100 more, think of the whites ones as being sold at a discount. This expands Apple’s market, reduces the per unit cost of production, and brings in revenue to fund future R&D. But as economist Robert Frank explains in today’s New York Times, price discrimination can actually help to lower the prices for everyone — even those who pay the top dollar prices. If Apple focused exclusively on offering a premium product, it would not be able to achieve the same economies of scale, and thus the cost of that product would be a lot higher. Though there seem to be obvious benefits from price discrimination for everyone in the market, the practice really prompts anger among people who see companies as cheating their customers. Furthermore, there are benefits to uniform pricing, which Steve Jobs himself understands. Even while it may seem most economically efficient to discriminate here, that ignores the economic friction of pissed off customers, who represent a real, if hidden, cost.