Which Price is Right?

slashdotNum2Big2Register writes "An interesting article at fastcompany about how things are being priced nowadays. The only drawback that concerns me is how each item and price can be connected to an individual. Amazon was already found to be doing this with their prices."

Airline Pricing..and others

[RaboKrabekian]

The idea of pricing products is to charge every consumer the maximum amount they're willing to pay. The trick is that it's usually very hard to have a purshasing system that allows such price variance. Airline pricing is one example - the closer you are to the date you wish to fly, the higher the price. (This is a vast oversimplification, but you get the idea). This is because business travelers, who need to fly at a moment's notice, are willig to pay much more than a recreational traveler, who's planning vacations 6 months in advance and shopping for the best deal. Businesses like Amazone are going to try and use every edge they can to increase their margins. From their point of view it's a great idea to use the technology they already have.

Old Hat

[RazzleFrog]

Catalogs have been doing this for years. Why do you think they ask you for that catalog code when you call up to order? B&M stores do this by region also. I was in the Gap in Mt. Kisco New York the other day and jeans were $10 more than the same thing in Danbury, CT.

to be expected

[flynt]

this is only an extension of regional pricing. take a trip around town and look at gas pricing in different areas, it differs dramatically. now, each individual is becoming his/her own region.

P2P pricing system?

[cmburns69]

"The only drawback that concerns me is how each item and price can be connected to an individual."

Should this come to pass on a widespread basis, it could be counteracted by some sort of open pricing network, similar to P2P.

Somehow the system knows what prices I can get for an item, and what prices anybody else logged in can get, and routes the purchase through that person...

Similar to pricewatch, but more community based rather than retailer based... .. Anyway, its just an idea! ..

An online Starcraft RPG? Only at [netnexus.com]

catalogs

[mgkimsal2]

Not quite individual level, but we get many catalogs for previous occupants of our current office space. Dell, in particular, sends multiple catalogs here. What I found very interesting is that 2 Dell catalogs - indentical in products offered - often have different pricing based on the recipient. The even more interesting thing is that both recipients worked for the same company at the same time, but one was male and one was female, and they were being offered at different prices. The 'product code' was the same, but the 'catalog code' (or something like it) was different. I can not remember if the prices were higher for the male or the female - sorry...

Re:Stupid Pricing

[sphealey]

This takes the idea of "what the market can bear" to an extreme. What's next, charging higher interest rates to people who like in bad neighborhoods?

Actually, that was not only common practice from the invention of the home mortgage (1880?) through the civil rights era (1975), it was actually required by the (US) Federal Government. Crabgrass Frontier (ISBN: 0195049837) has a good description of how the Department of Housing and Urban Development systematically went through their files around 1970 and shredded all references to the "Mortgage Quality Maps", but some documents survived. Banks were not allowed to write their best loans in areas with more than a certain percentage of "undesirable" residents.

sPh

pricing discussions

[mgkimsal2]

There are a few forums I used to frequent, one for webmasters. It was mostly freelancers or one-man shops, from what I could tell, but the forum moderators were strict to the point of being stupid over 'pricing discussions'. "We can be sued for supporting price fixing" is the standard response.

One person asked what it was customary to charge for a certain type of service. I replied back that I've seen people charge anywhere from $50 to $1500. *THAT* was considered 'potential price fixing'. How a number with a variation of hundreds of percents could be 'fixed' is well beyond my comprehension.

You'd think then that magazines or websites which have pricing on them (like, for example, ecommerce sites) would be collaborating in price fixing, as they can see info from other companies, and those companies can see their info, and adjust things accordingly.

There's a difference between knowing what someone else charges and actively engaging numerous people to all sell at a particular price, but people don't seem to see the difference.

Amazons pricing

[Foofoobar]

I was a buyer at Amazon from 95-97 and helped build their buying dept and I can tell you that it is even more insidious than that. They buy straight from publishers/manufacturer when they can on almost all of the most popular items so they can get a 55-60% discount.

And thanks to me, they get a killer deal on shipping due to a little known program known as consignment shipping via UPS so they pay less than half of what they normally would pay; though they charge you for the full price of shipping, nearly all of this money goes straight into their pocket. They now claim it is for the manpower to ship your book but I have an Uncle that works for the warehouse down in Nevada and gets paid minimum and the time it takes to fill an order is less than 3 minutes ($10/hr x 3 seconds = approx 0.75).

Now, they then charge full price and have items that they overstocked pull up higher in searches with edited customer reviews to make them appear better than they are. True fact. They started editing reviews back when I was there.

Oh the horror stories I could tell...

"...people just like the feel of a dead tree in their hands." -Jeff Bezos

Then on top of that

Re:pricing discussions

[MacJedi]

I'll tell you why they didn't want you to talk about it: asymmetric information [nobel.se] benefits the supplier.

Re:Airline Pricing..and others

[callipygian-showsyst]

The idea of pricing products is to charge every consumer the maximum amount they're willing to pay.

This turns the conventional (American) model of retailing on its head! Typically, the POORER you are, the MORE you pay for things.

Think of the services that we offer to poor people:

• Rent-to-own furniture stores
• Check-cashing stores
• Payday loans
• Car loans
• 19% Credit Card interest (on secured cards!)

Conversely, better-off people never pay for anything! For example I can't remember the last time I paid for an airline ticket! My company flys me around a couple of times a month, and that keeps me well-stocked in frequent flyer miles. I get samples of new computers, software, etc, because companies think I'll influence developers and purchasers.

The super-rich get even more freebies. For example, I know a bunch of folks here who got free electric cars from GM because GM wanted people in affluent neighborhoods to see others driving them.

Now, I'm not implying something's wrong here--I think many people are poor because they make bad financial choices (like payday loans!) and not because the "system" is against them. But it's true that the RICHER you are, the LESS you pay for things. If Amazon (or whoever) manages to reverse this by charging more to people who won't notice, it'll turn American marketing on its head!

Re:Not surprising that no one will talk...

[mugnyte]

He states this later in the article: It's not per-person, it per market state. Airline prices are reactive to the market 17 replications a week. Also, the ability to offer incentives are legal, whereby a frequent customer, a collaborative discount with a hotel (in this example) changes price.

When it reads that prices are all over the map, you can be sure that booking a flight with a friend will result in similar prices at similar times if you sit int he same purchaser demographic. That is not per-person.

mug

Neocapitalist Model?

[Anonymous Coward]

Haven't beefed up on Ricardo or Smith recently, but is this how supply and demand is supposed to work?

Sure, the ultra-rational producer is there, but my understanding was that the system was designed to ensure efficiency by forcing producers to increase the marginal value they're providing by securing efficiencies in their supply chain. So clothing chain A is not doing well because it sells "overpriced" products relative to chain B, so chain A is required to secure cheaper or superior manufacturers for their products (often through the use of technology). Cost minimization vs. price maximization. I'm somewhat at a loss to see how these technological efficiencies can be developed by price maximization. Is this the phenomenon Kenneth Galbraith was bemoaning over 30 years ago? Is this not just a formula for inflation with no discernable improvement in living standards?

Re:Airline Pricing..and others

[Ed Avis]

If you get frequent-flyer miles from flights paid for by your company, don't those extra miles also belong to the company? If you use them for personal travel you should at least get explicit permission for this.

There was a company making a business model out of helping other firms work around the incentive structures of airlines (which were thought to corrupt employees, making them choose the flight with the best perks, rather than the cheapest). So firms would accumulate the extra miles for themselves. I can't remember the company's name now, however.

Re:I don't get why this is such a big deal...

[corbettw]

Someone else has already addressed haggling over car prices, I'll address bulk buying. There's a huge difference in having break points on bulk items than in charging two different people the same price for the same amount of the same object(s).

For instance, you and I go into Kinko's and order business cards. We each order three color cards, on the same stock, with the same ship-by date. If we both order 100 cards, we should pay the same amount. If I order 1000 cards, I'll pay more overall, it'll just be cheaper per card (Kinko's wants to encourage you to buy more cards, and the highest cost to them is in the initial setup, anyway, so it's pretty much all profit after that gets paid). BUT, if we both order 100 cards and I pay more because I'm richer than you (or perceived to be), that's wrong.

Re:Journalism ethics

[sphealey]

From the article: The spokeswoman for a telecom company said, "We're not going to talk about prices, and the fact that we're not going to talk about it is off the record. You can't use the fact that we won't talk about prices in a story."

So he goes and prints it anyways? Can he do that?

Until doing so is declared a violation of the USA Patriot Act, sure. At least at the moment in the US we still have a concept called the First Amendment. There is no legal concept of "off the record" - it is just a professional courtesy between people who make the news and those who report. All it means is, 'if you publish this I will only talk to your competition from now on'.

For the moment anyway. It would not surprise me a bit to see organizations trying to use laws such as USA Patriot (particularly version II) to censor reporting that they don't like. But not yet.

sPh

Re:Not surprising that no one will talk...

[sphealey]

He states this later in the article: It's not per-person, it per market state. Airline prices are reactive to the market 17 replications a week. Also, the ability to offer incentives are legal, whereby a frequent customer, a collaborative discount with a hotel (in this example) changes price.

I hear you. Problem is, if there are 300 million residents of the USA, how do I distinguish between "market pricing based on 300 million market states" and per-person pricing?

sPh

Customer Collusion

[travdaddy]

There are a lot of posts worrying about business collusion, but what about customer collusion? A site like PriceWatch should be able to go through a website and collect prices under different profiles.

Then, as a customer, I might get a little annoyed knowing that a company is trying to sell me a book for $20 when I know Person X can get it for $15.

Re:Airline Pricing..and others

[joedoe]

While you're right about predatory practices that American businesses often engage in, this is a different issue altogether. Those practices mostly hinge on the scarcity of money among the poor, and hence their greater tendency to utilize expensive credit.

Think of the automobile market, which was one of the first examples of someone creating divisions within the market (at GM) to capture more of the money that consumers were willing to spend. The (relatively) poor can buy cheap K-cars, while those with more money settle on better-equipped models, and those with more go for Merecedes, and so on. Without differentiation of products, everyone would have bought a car, sure, but they wouldn't have paid nearly as much for the cars, and the automakers wouldn't have made anywhere near as much money.

In a way, this is an extension of the product-differentiation model, with the idea being that differentiating by individual rather than by class can get them even more of the consumers' money. Inherent in all this, of course, is that they want their tactics to remain (at least relatively) hidden from consumers, fearing the backlash.

I doubt the legality of that, so we're perhaps more likely to see all businesses in a given area settle on similar practices, and then it doesn't matter if they're open about them.

All of this neglects to mention one thing

[Stubtify]

Well the article mentions how technology is helping the businesses, but not the consumer. Yes Amazon keeps track of your past purchases, yes if I search for anything there is a list of "suggestions" on the side. Yes I may not see the same prices as you do, but all of this doesnt matter for one reason.

I can go anywhere I want to buy anything amazon has to offer me. The internet allows me to shop around with minimal effort. "Memory sticks are $52 at amazon? Well I saw them at compusa for $42"

I'm not worried about this because I don't shop and expect to get the lowest price unless I do some work. That amount of work has lessend with pricewatch and other deal sites, and this is where I think technology is hurting companies. Its too bad that neither article mentioned this, I would like to see how they plan on combatting it. Remember when "price matching" was all the rage?

I mean, amazon.com's prices are usually very flexible, they flood the market with coupon codes, free shipping, and so what if they charge more to an idiot who is willing to pay it. If they notice you're only buying the things that you see as being cheapest from them they'll realize whats up or their software isn't worth jack.

Discriminatory pricing

[[e-mail]]

Am I the only one who has taken basic economics?

It's called "discriminatory pricing", and is not at all illegal or unethical. Look at your local movie theater. Say they charge $2 for kids and $7 for adults. Why? Because they'd have a family of four pay $18 dollars, rather than that family not go at all because it's $28. 1 x $18 > 0 x $28

Same thing with cheap night. Tuesdays, all seats are $2, because they'd rather have some people at $2/seat, rather than no people at $7/seat.

What really baffles me is that people think they're entitled to know what goes on behind the scenes when businesses set prices, or base buying decisions on that. "They're charging $7 for shipping when it only costs then a dollar!" So what? Is the total value of getting the items to your house worth it, or isn't it?

Re:Fleecing the poor

[sphealey]

Financial services to the poor have, all else equal, much higher default risk. And default costs swamp everything else. Consider that the margin over cost of funds for most consumer credit is 2-3%. A default rate of 1% destroys the profitability.

And the proof of this is in the market. Credit companies are neither bashful nor shy. If there was money to make, your friends and Cap One and First USA would divert some of 1 billion or so peices of mail then send.

The "higher risk" theory explains a difference in credit costs of up to x%. We can argue what x is: 10, 20, 50? But it does not explain differences in credit costs of 100, 200, up to 10,000%.

And no, SuperBank isn't going to jump in to the low end market just because there is a profit to be made, for two reasons: historical under-the-table handshake agreements not to do so (see Crabgrass Frontier, referenced in another post, for an example of how this was done with home mortgages for 90 years) and the fact that buttoned down, upper-middle-class bankers flat out don't like to do business in less savory neighborhoods. If they don't feel comfortable driving the BMW there, they won't make a loan there either, regardless of the potential profit.

sPh

this from suck.com, 1998

[tchdab1]

And no, it wasn't a pr0n site.

11/30/1998:
So the same computer that will
transmit you a reminder to buy
hamburger buns when you pick
up the patties will raise prices
for you as you approach the
lettuce. If your desire for a
lettuce purchase lags, you'll be
stimulated by additional
promotions designed to whet your
appetite. The supermarket will
be alive, and the deities that
govern it will operate in real
time.

Re:Airline Pricing...

[Anonymous Coward]

Was I the only one who thought the explanation of airline pricing seemed incomplete?

I do find buying plane tickets frustrating... but it isn't because the prices for the same flight go up the longer you wait. I've no objection to that.

But in my experience, the cost of flying from point A to point B at a certain time is about as likely to fall the longer you wait as it is to increase.

I haven't documented this, but I don't think it's particularly rare... sites like Travelocity.com offer an option to watch fares and notify you when they drop. Why would they bother if fares only increased the longer you wait?

The (otherwise excellent) article only addressed why airlines would raise prices as the number of available seats on a flight falls in proportion to demand. But I've always assumed the reverse is true as well; if a flight isn't filling up fast enough, airlines are willing to cut the prices of remaining seats. As long as they have the fixed costs of the flight they want to get at least a little money out of every seat on it.

If this is the case, then economically it makes sense. But from an individual customer perspective, it certainly feels like a shafting when I plan months ahead and end up paying more for the same thing as some slaphead who waits until two weeks out to buy tickets...

Re:Airline Pricing..and others

[Hentai]

Now, I'm not implying something's wrong here--I think many people are poor because they make bad financial choices (like payday loans!) and not because the "system" is against them.

You think maybe they wouldn't HAVE to make those "choices" if maybe they weren't poor? And maybe they wouldn't BE poor if they didn't have to make those "choices"? Christ, man, can't you recognize a feedback loop when you see one?

I'd say about 50% of poor people are poor because they're stupid, and the other 50% are poor because they're oppressed. I've nearly slid into poverty twice now, and I assure you, the further down the slope you slide, the harder it is to find purchase and keep from sliding further.

I'd also say that about 20% of rich people are rich because they're shrewd, and the other 80% are rich because they're priveleged. I've nearly "made it big" three times now, and I assure you, it's not WHAT you know, it's WHO you know.

"To those that have, much shall be given. To those that have not, even that which they have shall be taken away." Why is one man's fundamental human will "worth" more just because his daddy can fund his entrepeneuralship and get him the right connections to land 50 million dollar deals, while another man - with just as much talent and integrity - is forced to work at McDonalds and get nickeled-and-dimed to death, paying rent on a house he'll never own, taking loans just to feed himself, until one day a computer glitch fucks up his credit rating and his only two choises are starve or steal?

There's gotta be a better way.

Re:Fleecing the poor

[poot_rootbeer]

I wouldn't recommend instituting a 'women-only' hiring policy, unless you feel like running afoul of Equal Opportunity Employment regulations...

Too bad Coke pricing isn't weather sensitive

[fname]

For those that read the article, I think it's a shame that Coke's weather sensitive pricing model failed. If it had worked, then often a Coke would cost less (who would want to drink it on a cold day), other times it would cost more. But here's the beneficial part. Now, I bet Coke machines are a lot more likely to go empty on hot days than they are on cold days, because people buy more. Have you ever been in a situation where you would gladly pay $3.00 for a Coke/ bottle of water, if only one were available. Well, with weather sensitive (and inventory sensitive) pricing you could. Once stock gets too low, the price rises, and only the truly thirsty drink. Brilliant!

Personally, I've paid $3+ for a bottle of water before, usually b/c I'm really thirsty and that's the only option. Now, if I'm dieing due to dehydration, it's certainly immoral to charge more than a fair/ standard price. Otherwise, let me make the decision.

Last note on bottled drink prices. They are expensive at sporting events, airports and rock concerts. Why? Scarcity of supply, which drives up prices, increases profits, which either go to maintain the airport and line the owner's pockets;. Note that the vendor doesn't relly make a killing. The rent (and other fixed costs) that he pays reflect the fact that he can maintain very high profit margins. I have no problem with that.

However, it makes my blood boil when I go to an event or place that charges $4+ for any sort of drink, and does not have drinking fountains available. I think it's a matter of time before some public parks decide to remove their water fountains (at some indeterminable savings), and gives the monopoly soft-drink contract to Coke or Pepsi, who then proceed to charge $1 for every drink in a public place. The park rangers/ city councilors will claim it's a win-win-win b/c 1) The city "saves" money by removing the water fountains, 2) the city is paid for giving the monopoly contract, 3) the consumers have a wider variety of drink choice! HAH!

I'd actually be fine with the scenario if there were no monopoly contract, b/c then the pricing would likely be reasonable. Ever notice how cheap Coke is in a Coke machine when it's next to a Pepsi machine? That's why the vendor wants the monopoly contract, and why public entities should NEVER give a true monopoly soft-drink contract (i.e, monopoly contract and water fountain removal).

Re:Fleecing the poor

[milo_Gwalthny]

First, just for kicks, I'd like to see an example of a 10,000% difference in credit cost. A very cheap mortgage, one of the cheapest of consumer credits, is about 6%, all in. That would mean there is someone charging 600% to some poor devil. Doubtful--yes, illegal--almost certainly. If you're talking about "no interest" car loans, you should read the financial statements of a car company with a finance division, and try to seperate credit cost from price. You'll find that the credit cost GMAC records is not what you see in the flashy Pontiac ad.

Second, plenty of SuperBanks are trying to do business in less affluent neighborhoods while making money, but quietly. For instance, many large banks have been trying to buy into the storefront check cashing business. They try to stay low profile because the vig these places extract is insultingly high, and they don't want to insult anyone. On the other hand, if they opened their own, they realize they could not charge much less and make money.

There are plenty of places that even you wouldn't want to drive your car (despite your superior attitude) that greedy capitalists have been happy to invest in--think Nigeria, Colombia and some of the grittier ex-Soviet republics: you will certainly see the familiar red of the Coca-Cola logo and perhaps the golden arches, and you probably won't see the oil/arms company exec behind the tinted glass of his armored Mercedes.

If there is money to be made, believe me, someone will be there to make it.

PERFECT competition - Re:Rehash

[SpikeSpiff]

I agree. No market is perfectly competitive. Most markets fit somehwere on the continuum between perfection and complete regulation.

This has no impact on the arguement at a Micro-Economic level.

Hypothetically, imagine that you are a clever entrepreneur, and start your own restaurant. The restaurant is doing well, so you decide to hire a IT person. You advertise on Monster and get 50 resumes. (In this economy you get 500 resumes). You winnow the list to the 10 qualified applicants, and then discover that 4 of them want 30% less money. Which do you hire?

This decision certainly does not depend on anonymity, identical applicants, or PERFECT competition. It just depends on smart people doing a good job of hiring.

I don't believe that we have a gender gap in productivity or ability. I believe we have a statistics gap.

The Sweet Spot

[Sloppy]

Monroe tells a pricing story that shows how even the simplest situation can confound accepted wisdom about prices. "A company is making two versions of the same product," says Monroe. "One has a little more gold and foil on it, but they're essentially the same. One is $14.95; the other is $18.95." Not surprisingly, the $14.95 item is selling better. It's also the lower-profit product.

"Then a competitor comes in with a third product. Again, it's essentially the same thing, but a fancier version. And it's much higher priced: $34.95."

For our original company, asks Monroe, "what becomes the best-seller? Why, the $18.95 version, of course."

Fascinating... this is almost exactly how I buy processors. Here I am, thinking I'm so wise to pick the best-bang-per-buck "sweet spot". But somehow after reading this, I feel like I've just been identified as a mindless sheep.

Standard argument in favor of price discrimination

[F452]

(This is something I saw recently in a presentation that I thought was interesting.)

Alan is willing to write a report about something, say electronic money, if he can make $1500 on it.

Betty is willing to pay $1000 for the report.
Charlie is willing to pay $700 for the report.

If Alan were to charge $700, both people would buy the report, but he wouldn't make his $1500 so he wouldn't produce it.

How about instead, he charges:

Betty $950
Charlie $650

Now both customers get a price break from what they were willing to pay, and Alan gets an additional $100. And something of value was created that otherwise might not have been. So is this a good thing?

Re:Airline Pricing..and others

[workindev]

I'd say about 50% of poor people are poor because they're stupid, and the other 50% are poor because they're oppressed

What the heck does this mean? The poor are no more "oppressed" than the rich are. If a rich guy doesn't pay his bills, you can bet that people are going to go after them just as much as a poor man that doesn't pay.

I'd also say that about 20% of rich people are rich because they're shrewd, and the other 80% are rich because they're priveleged...it's not WHAT you know, it's WHO you know

And I'd say that you are full of crap. If knowledge had absolutely no bearing on your wealth, why is it that a college graduate earns 60% more [state.mn.us] on average than somebody with a high school diploma? While I don't deny that some people are rich because of a priveleged position that they were in, it is certainly not a limiting factor. Some of the richest people in the world started out without knowing anybody (think of the Sam Waltons and Bill Gates of the world).

while another man - with just as much talent and integrity - is forced to work at McDonalds and get nickeled-and-dimed to death...

I would say this other man is most definately not as talented, otherwise he wouldn't be working for McDonalds. It doesn't take any talent at all to sit around and bemoan the great injustices that have been heaped upon you, while blaming the rich or privileged for all of your problems. A truly talented person would find a way to use his skills constructively, regardless of this position.

There's gotta be a better way.

Well, thats fine and dandy. A typical leftist approach is to find fault with anything they disagree with, but when it comes to actually providing a constructive alternative, they suddenly fall silent.

I'll give you a hint. Currently, there is not a better way than the way we do things. Capitalism is the only system that has shown constant success over the past 200+ years. Note that the alternatives have all been dismal failures.

A couple of points

[megazoid81]

I was pretty surprised when I read how complex the pricing racket is in the U.S. Having lived most of my life in India, I was pretty surprised when I came to the U.S. In India, most non-bulk articles have a Maximum Retail Price marked on them by the manufacturer. The notion of Maximum Retail Price was very closely coupled with the cost of production. If you shopped with a particular shop frequently, they could feel free to sell the article to you at any lower price than the maximum.

Second, with reference to the airline pricing business, how do services like priceline work? You can basically book arbitrarily long in advance (within the 330 day limit), but you get your prices accepted pretty early on, even when there is a chance the airline could charge a premium for your seat.

The airline pricing industry is a racket indeed, because for instance, flying from Boston to Chicago is more expensive than flying from Boston to Milwaukee!

My experience with chaotic airline pricing

[swb]

When it reads that prices are all over the map, you can be sure that booking a flight with a friend will result in similar prices at similar times if you sit int he same purchaser demographic. That is not per-person.

Two years ago I booked a trip to New Orleans (personal trip, not business) on NWA. I called the reservations agent on a Sunday morning five weeks before my trip and got a quote on a ticket of about $250. Three hours later I called back wanting to book the ticket, and I got a price of $425. I checked the web site and the price was the same $250 I had been given earlier. I called the reservations number back and was given an intermediate price of $290.

I ended up booking the ticket on the web (since it was ultimately the lowest fare), but to this day I'm baffled on how the ticket price fluctuated so wildly. I was booking my ticket well in advance, on a non-business day, for an unpopular time slot (it was an 8PM flight on a Wednesday) and paying cash (no FF miles or number involved). I'm not aware of any festivals, conventions or other activities going on and the flight itself had a fair number of empty seats.

I can only surmise that the pricing models used are highly reactive to inquiries in addition to sales and that my inquiry plus others may have stimulated the demand-pricing mechanism to start cranking up the fares.

Short of that explanation, it just struck me as roulette pricing. Spit out a high price occasionally and see what happens.

Actual loss: 12.7% Re:Fleecing the poor

[SpikeSpiff]

In 2002, Providian, which was thought of as one of the selective sub-prime lenders, had a default rate of 12.7% according to Fortune [fortune.com]. They lost over $400 Million on the sub-prime market last year.

That is the opposite of price gouging. The were so aggressively low fee/price that they were nearly bankrupted by a minor economic downturn.

Re:airlines created their own mess by chaning pric

[JimBobJoe]

There is no company or brand loyalty because the customer knows if they dont shop for price they WILL get screwed.

For the most part, airline service is not differentiable...though there does seem to be an observable difference between the low quality carriers and the high quality carriers on service and on-time performance. But that isn't known to your leisure travellers, who shop entirely by price, unless they have had some abnormally negative experience on carrier X. I need not tell you that everyone and their grandmother tries to book a trip somewhere, the first thing they ask about is price.

Having said that, leisure travellers simply aren't profitable, or you need a hell of a lot of them before the flight at least breaks even. Your supersaver 21 day advance fares are a loss to the airline. (Incidentally, the consistency in airline fares come from the fact that everyone knows that fares go up the closer you are to the travel date. On a side note, the expansion of the complexity of supersaver fares is how checking for photo ID was introduced--it never had anything to do with security, it had to do with making sure that person X wasn't buying a ticket in advance that they had no intention to use, to sell to person Y who suddenly needed to go somewhere and didn't wanna pay full price.)

Anyways interesting example of this (regrettably, the only example in my head) is the Continental 757 flight from Cleveland to London Gatwick. It's not an exception at all incidentally...but if you fill all the first class seats on this flight, you'll pay for the entire plan to London *and* back. On the other hand, you need a good 100 passengers in economy class to get same result. Therefore first class is vitally important...and airlines spend huge amounts of money trying to differentiate their first class products. And who flies first class? Business travelers who care about being on-time and the service/amenities they get. Simply, airlines can barely care about their economy class product since they lose money/only break even on the majority of seats anyway.

I'm from Costa Rica, and my mother often flies down there to see the family. One thing that always bugged her was the fact that fares to latin america were terribly high in comparison to fares to europe, and it seems that flying to europe is a much more complex transaction, not to mention it's farther :-) . Fact is, it's very hard to sell expensive first class seats to latin america, in comparison to europe, so the airlines can only try to make a profit on economy class. Which is exactly what they do with fares that seem abnormally high for the distance traveled. (I should add that fares to latin america are some of the most stable...they barely move up or down, and we've paid the same price, within $100, 90% of the time we've gone there, for the last 20 years. Clearly it's getting slightly cheaper with time, but it's pretty stable.)

So having said that, it only makes sense that airlines try to change prices many times per day to eek out just a little bit of profit on the economy class seats. It's the only thing they can do.

I incidentally disagree with your comment that Customers do not want to be in the price shopping business. Customers love to price shop...especially when they are buying their ticket 3 months in advance. There is such a psychological reward in getting a good deal.

Re:Airline Pricing..and others

[Arandir]

I've been both dirt poor and reasonably well off. I prefer the latter of course, but at least I'm in a position to see both sides.

Typically, the POORER you are, the MORE you pay for things

Rent-to-own, etc: I've worked in rent-to-own stores. 5% of my time was delivering new televisions and sofas. 95% of my time was spent collecting. There is a huge risk when dealing with people that have no credit rating. And credit ratings do not discriminate on the basis of income. Would you extend credit to Wynona Rider and Michael Jackson? I wouldn't! But I know many poor people with excellent credit. How do you get good credit? Consistantly ay your bills in a timely manner. If people will not pay their bills in a timely manner, how can you expect them to make rental payments in a timely manner?

Car loans: Hey! I've worked in auto dealships too. Guess who pays cash for cars? No one! If they're a member of a credit union (there's that evil "credit" word again), then they'll go through that instead of the dealship, but they all take out loans on cars. I've only once ever heard of someone paying cash for a new car.

Secured credit cards: Damn those interests are high! I had one once. I had one because I had no credit. But I paid my credit bills in a timely manner and I got good credit, and subsequently got unsecured cards with lower interest.

The poor don't pay more than the rich, but those with bad or no credit will pay more than those with good credit.

Conversely, better-off people never pay for anything!

Now that I'm better off and in the top %7 of income, please inform me how I can get away without paying for anything? I hear this now and then, but I guess I don't belong to the right country clubs or something, because the liquor store still charges me the same $7.99 for Anchor Steam Beer that they charge to the poor guy down the street. The airlines still charge me for airline tickets. The auto dealerships still expect me to pay for cars. The only free samples of software I get are cheapass .NET and AOL coasters. Oh sure, sometimes I get to fly at company expense, but funny thing is, the company keeps those frequent flyer miles.

If I walk into a store wearing a nice suit and say "give me something free because I'm rich", they'll call the cops!

Re:Fleecing the poor

[Gleef]

milo_Gwalthny wrote:

[a bunch of interesting economic and social points that I have insufficient background to respond to compitently]

For various reasons, both the community of Harlem and the town of Mount Vernon (both New York) have turned down proposals by big-box retailers to open in their neighborhoods, forgoing both the tax benefits and the lower prices that would result. I can't speak for why they did this, but it is one answer to the bizarre mystery of why groceries are more expensive in poor neighborhoods than anywhere else in New York City.

I was born and raised in NYC, and still visit there regularly. I don't find the groceries more expensive in New York's poor neighborhoods than wealthy ones. I do find a few things:
1) Some poorer neighborhoods don't have a big grocery, they just have a greengrocer or bodega, both of which are more expensive than a full supermarket. This is almost certainly because it's harder to get loans for a business in a poor neighborhood.
2) The big name brands are more expensive in supermarkets in poor neighborhoods than wealthy ones
3) The supermarkets in poorer neighborhoods make up for it with a wide variety of "little name" brands: (eg. Badia, D&G), some of this stuff is pretty bad, some of it is good stuff I prefer to the pricier "big names"
4) Some (but not all) of the poorer supermarkets also make up for it with excellent meat and/or produce prices. Apparently there are some good sources out there that are not available to all venues.

So, yes, if you compare the price of a carton of Minute Maid at Food Emporium to the same carton at C-Town, Food Emporium might come out ahead, but I can feed a family well for cheaper at C-Town.

To get back to turning down the big box retailer, I can't speak for Mt Vernon, but some attitudes that I have often heard expressed in Harlem go along the lines of:
A) Big chains homogonize their stock, an independant business is more likely to match the product desires of the community (more little name brands, rather than the big name brands)
B) Big chains take money out of the community. Harlem doesn't see the tax benefits of a Wal-Mart, that goes to the City; the lower prices aren't on what they want. They do, however, see that the guy who owns a store on 125th street, and lives on 133rd street, employs people in the neighborhood and spends most of his profits in the neighborhood, enriches the neighborhood in a real financial sense.

Don't underestimate the power of community in the decision making process, or overestimate the benefit of the homogonized "big-box" retailers.

Airline prices and who is going to blink first

[Anonymous Coward]

Actually ailine prices tend to fall the closer you get to departure time. For example, I once had to fly from Cleveland to L.A. I went up to the counter and was quoted $1800 for a one way ticket. I told the ticket agent that I didn't want to go that bad and started to walk away. Suddenly I was offered the choice to fly standby for $99.

The bottom line is that airline pricing, like most things in the world is simply a matter of supply and demand. The price you pay is determined by how much you want the item and how badly the seller wants to sell.

Re:Airline Pricing..and others

[Hentai]

Actually, I didn't mean for either of them to imply a preferred direction. I've chosen not to "make it big" each chance I got, specifically because I couldn't scrub hard enough when I got home from talking to the people I was forced to associate with. I'd far rather make $35,000 per year, quietly coding database front-ends while I tinker with my artwork at home, than spend the next ten years "buying and selling men like you for breakfast", as one of my almost-partners said to a friend of mine.

Yes, it's probably a waste of my coding talent, but I'd rather it be wasted than misused (read: used in any way *I* disagree with).

And to respond to the inevitable counters: that's how I want it. Some people choose to be paid for their talent in cash; I choose to be paid in leniency. I can afford to do what I want, and so I don't try to grab at more. Granted, it sucks sometimes when unforseen events push my finances into the red, but economics is a negative-sum game, and I'd rather soak that karma than pass it on.

I don't bitch because MY life sucks; I bitch because many of the people I choose to associate with, people just as insightful and charismatic as the multi-millionaires I've shaken hands with, are starving to death on street corners for no better reasons than an accident of birth.

And before you go off about left/right, I happen to be a die-hard capitalist, and I would LOVE to see true capitalism implemented in America. It's not going to happen in our lifetimes without a revolution, but if it did, we could ALL share in the propserity.

What we have is corporatist fascism, thinly disguised as consumerist capitalism. If you believe otherwise you're deluding yourself.

Re:Bah!

[Hentai]

Okay, a few theoreticals then:

What if none of your friends were willing to put you up for the night?

What if the first night locked out, on the street, you had been picked up for vagrancy and jailed for 30 days?

How would you have continued your classes?

You ARE the exception to the rule, sadly. I am duly impressed - partially by your luck, but much more by your perserverance. And you're right, many people WOULDN'T have tried that hard, and would have just settled for being poor and destitute. But many other people have tried JUST AS HARD as you have, and been knocked back down by further injustices.

It's a lot harder to deal with those injustices when you don't even have a permanent address.