Excellent example of price discrimination

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Via the Freakonomics blog comes the following picture:

Source.

At first glance this seems weird, they are charging different prices for the same thing!!!  However, as anyone with experience of vending machines and universities knows, these puppies provide a lot of service to students late at night.  In fact, it is typical for sections of the machine to sell out before nightfall.

As we know that the first people to the machine will pay the lower price, we can also say that once the cheap chips sell people will have to pay more.

Now, given that the local tuck shop will be closed by night time we know that the number of substitutes to the vending machine falls at night.  As a result, this pricing system ensures that the owner of the vending machine can charge more for the same chips at night time (assuming of course that the cheaper chips will sell out during the day time when substitutes are available) – when people value them more highly and are willing to pay more.

Excellent stuff.

Posted in Industrial economics

About Matt Nolan

Matt Nolan is an economist at Infometrics (although the opinions expressed are independent of the organisation) . Email: matt@tvhe.co.nz; nolan.matt@gmail.com; matt@infometrics.co.nz. Work phone: 04-496-5290