# What if price were a function of buyer's income?

If everyone's income were public information, would purely profit-seeking sellers benefit from charging different prices to people based on their different incomes? My intuition says yes because a buyer's demand for some good at a given price depends on that buyer's situation in life, including income. It seems to me that prices could be better optimized if customer information on an individual level were taken into consideration.

But I'm not sure about this. I lack the mathematical know-how to think about this thoroughly. It seems plausible that the optimal price would be the same for all customers due to competition causing prices to converge ...or something along those lines. The Wikipedia page on price discrimination brings up the issue of discount buyers reselling goods for a profit, but I think this could be avoided by limiting the quantity of a discounted good a customer can buy, and it's not an issue at all if the good can't be resold. That page also refrences coupons as an example of price discrimination because only people with a low enough income can benefit from spending time on clipping coupons.

So I think there are already some successful forms of mild price discrimination, but it doesn't seem all that common, possibly because there isn't a way for customers to prove his/her income. Could price discrimination based on income work at a larger scale if people could prove their incomes, and could this help reduce inequality?

• This already exists - student discounts!
– user17900
Commented Feb 17, 2019 at 20:32
• Also ads. With ads you pay with your time, so effectively cost is equal to income * time (I would think). Commented Feb 18, 2019 at 8:03
• Maybe also credit. The APR you get on a loan depends on your income and wealth. In this case it's discrimination against the poor. Commented Feb 19, 2019 at 23:37
• There seem to be at least three different questions here: "would purely profit-seeking sellers benefit"?; "Could price discrimination based on income work at a larger scale?"; and "could this help reduce inequality?" I suggest you focus on one.
– user18
Commented Mar 15, 2020 at 6:18

This is just perfect price discrimination. Happens sometimes with niche drugs (where drug makers can know the ability of people to pay). In this scenario, consumer surplus is completely captured by suppliers.

• Perfect price discrimination requires the knowledge of people's willingness to pay. But people's willingness to pay is not necessarily the same as their income. Commented Feb 17, 2019 at 19:01

The variable price structure you propose would be challenged on two fronts:

1. straw man purchases and
2. grey-market sales.

The most common examples of these phenomenon from an empirical standpoint are the restricted alcohol market for minors prompting straw man purchases and grey-market sales of EBT cards.

The EBT card situation is particularly interesting because it also often serves as a liquidation mechanism and de facto money-laundering system for illegal profits from the sale of illegal narcotics.

• EBT cards are a really good example of the issue of reselling the goods. I think the problem with price discrimination here is that competition will drive down prices regardless of what the buyer is willing to pay. Commented Mar 15, 2020 at 16:25