Wednesday, February 09, 2005


by Tom Bozzo

Even though it ultimately yielded only one frightening e-mail, the experience of drawing the attention of the creationist crowd has left me at a loss for a good post. Plus, there's snow to shovel this morning.

So consider paying a visit to the other Marginal Utility, where Rob Horning has been musing interestingly on convenience and consumerism: here on "yield management" systems (fully safe for work) and here on the principle of "sex sells" (click-through discretion advised unless your work involves sex research*). Just please come back here later.

I respectfully disagree with portions of the concluding paragraph of Horning's yield management post. He argues that yield management makes consumers better off at the cost of eliminating illusions of control over one's economic life and of fairness. The bargain actually isn't even that good.

Price discrimination (what yield management systems do) makes some, but by no means all, consumers "better off" compared to a uniform price. Consumers positioned to pay a lower price than would otherwise be available to them get to consume something they otherwise wouldn't, but that is funded by soaking high-valuation consumers.

I'm also a little surprised that he missed this implication of the economics: perfect price discrimination would effectively make no consumer "better off" apart from the arbitrarily small incentive it takes to get them to choose to buy whatever is for sale. This is because rather than divorcing prices from valuations of products, perfect price discrimination matches prices with individual valuations, thus transferring the consumer surplus to the firm. The resulting consumption would be almost purely for the selling firm's benefit!

The bottom line, though, Horning has right.

* Regular visitors here may not be excessively scandalized, but don't say I didn't warn you! (Yes, the influx of conservative Christian visitors did spur the Imp of the Perverse to link that second post.)

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