Posts Tagged ‘pricing’

A central idea in revenue maximizing pricing is price discrimination- try to get more money out of the people who are willing to pay more. On this topic alone, tomes have been written, careers and fortunes made, court cases filed, more fortunes lost and so on. However, price discrimination needn’t just be about making more money. If the people who want to pay more are the same as the people who value the good more, the resulting allocation is societally efficient. Two obvious ways it goes wrong: i) people who value a good more might not have the money to pay for it, and ii) using money can seem, well, grubby.

So we do all sorts of second best things- e.g. get people to stand in line for concert tickets. That way the fans who really want to see the concert are the fans who’ll probably stand in line. If time is money, then it’s resulted in a loss to them, but somehow this seems societally better. And there’s the resale problem – people who don’t care for tickets, but have no value for time, will stand in line and later scalp the tickets to people who do care and are short on time.

So how do you get around this, at least a bit, without using money? The geniuses at Google gave us a new answer during the launch of  their Chromebook laptop. The laptop, and they’re looking for a few thousand people to test it before commercial launch later in the year. How do you make sure the people who get it are people who want it/ will use it, without charging them?

So first, when they launched it, they put out this promo video.

Seems rather innocuous, but then look closely at the 2:23 mark of the video. There’re some equations on the greenboard in the background. Turns out if you solve them, and find the value of x, it’s a long string of 1s and 0s. Do some more code solving, and you get the URL http://www.goo.gl/speedanddestory . It’s a secret URL to a secret form. First person to fill it out got the laptop…

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Someone shopping for a car loan online recently found something reasonably clever afoot at Capital One’s website (assuming of course that this was by design and not due to a website programming error)- Capital One offered a lower rate when he was using a Google Chrome browser, and a higher rate when he used Mozilla Firefox (Safari and Opera use resulted in interest rate offers between the Chrome/Firefox watermarks).

Many of you visiting this blog will recognize this as third degree price discrimination, which the arbiter of truth of our times (Wikipedia) defines as varying price by a customer attribute, which is used as a proxy for ability to pay. The examples you’ll see in your ‘standard’ economics textbook will refer mundane examples like student or senior citizen discounts. Capital One is the only one that I know of visiting the brave new frontier of price discrimination by conditioning on technology choice. While we’re at it, I figured I might as well suggest other ways to achieve better outcomes by conditioning on people’s technology choices. Here’s a few that came to mind:

  1. Overcharging customers who visit from a laptop running Windows XP + IE 6. They’re clearly highly paid consultants/ bankers whose IT department won’t let them upgrade.
  2. Extra TSA attention for anyone in the airport carrying a Nokia phone- they’re clearly not from around here.
  3. Obviously, undercharging @gmail.com and overcharging @hotmail.com on mortgages (see: The Oatmeal)
  4. Student discounts for anyone whose browser history includes collegehumor and/or icanhazcheezburger and senior citizen discounts for anyone whose browser history includes mapquest.com


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