2
$\begingroup$

What I've called "elastic pricing", has a true economics name that I believe I once heard.

Here's the notion: I walked into a gas station to buy a fountain drink. I only brought a dollar with me, but when I went to purchase the drink, I found out it was actually \$1.89. The cashier accepted that as payment - making a real-time decision that he was able to capture my demand at only $1. I ended up trying this at a few other gas stations, sometimes bringing 90 cents, and it always works.

An alternative to this is that my University just started pricing football tickets at a variable rate based on the location of the seats. Invariably, they were trying to capture the additional value that the second market was instead capturing.

A second alternative is that a former company of mine negotiated every price. So we would usually price the product at $500/user/month. But, we would always assess the situation, and with negotiation offer discounts, or increase the pricing. Or, provide value added services for free or at an increased rate.

So how do I talk about this flexible pricing concept – where a business sets it's pricing based on some kind of average demand, but considers an additional spread based on an individual's demand?

Edit: In my first example, the bargaining was only noteworthy because it informed a new mental model of mine – that the pricing was flexible. I don't believe it's an inherent component in the term I'm seeking.

As yet another example, consumer package good brands are known to alter their products slightly for online marketplaces – so that value savvy customers can't compare products directly online with those in the store. E.g. Duracell might offer a 6pk of batteries on Amazon vs. a 4pk at a retail outline. Or, they might package the item differently so it has a different SKU.

$\endgroup$
  • $\begingroup$ Your edit has made the question very fuzzy - at least for me. The examples before and after seem to have very little in common other than some version of discriminatory pricing. $\endgroup$ – Giskard Sep 3 '17 at 19:47
  • $\begingroup$ In the gas station example, are we to assume that the cashier, as an employee of what is presumably a big company, has been delegated authority to make a judgement about what each customer can afford? $\endgroup$ – Adam Bailey Sep 4 '17 at 11:40
2
$\begingroup$

Perhaps you may want to look into Price Discrimination? This however is the concept of companies varying their prices on different consumer markets.

1st degree price discrimination, at it's most optimal, is when companies charges the price of each individual consumer's demand. Those willing to pay the most will pay the most. Your description resembles this procedure, but it is not quite exact. Yours implied bargaining, which may or may not lead to 1st degree price discrimination.

2nd degree price discrimination is setting variable prices depending on the product or the quantity sold, playing off of the consumer's preferences.

3rd degree price discrimination is the segmenting of a market into smaller markets (based on some characteristic), and charging a uniform price in that market. The price between these segmented markets vary.

$\endgroup$
  • $\begingroup$ Thanks for the insightful answer. This isn't the term I was looking for, but I learned something, nonetheless. I gave you an upvote, anyway. $\endgroup$ – Devin Sep 2 '17 at 23:40
2
$\begingroup$

The act where you go in with less money for fountain drinks but still are sold one is called fourth degree price discrimination. This is when instead of the firm discriminating between buyers, the consumer extracts extra surplus from the seller by negotiating the price, and the seller moves closer to their willingness to sell. Often you'll see this happen with negotiating for large appliances for example.

The first alternative you provide however is called vertical product differentiation. The seller here (football venue in your example) provides different quality products (better views/seats) at different rates.

The second alternative you provide is closest to first degree price discrimination, where the firm tries to get a close to the consumer's willingness to pay as they can to extract the most surplus from them.

Your example with selling goods in a way where quality is indistinguishable or difficult, selling online versus in a retail store, sounds like horizontal product differentiation, which involves distinguishing similar products based on characteristics that don't necessarily have to do with quality.


Your many different examples encompass different ideas, but a generic term that best describes the phenomena you are thinking of is called nonlinear pricing.

$\endgroup$
  • 1
    $\begingroup$ I have never encountered the phrase 4th degree price discrimination before. I googled it now but I am getting contradictory explanations. Do you have a good reference for this? If you want, I can ask this as a separate question. (I'll do whatever you want, please don't ban me!!) $\endgroup$ – Giskard Sep 3 '17 at 19:44
  • 1
    $\begingroup$ lollll I am but a benevolent mod I promise! I actually tried to remember where I found the phrase but cannot seem to remember where I got it from. I think it can also be called reverse price discrimination, but given what I'm finding, both terms may just be informal references that I've heard rather than something set in the literature. $\endgroup$ – Kitsune Cavalry Sep 3 '17 at 20:28

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.