Excellent example of price discrimination

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.

130 replies
  1. insider
    insider says:

    Sexy should be easy, it’s relationships that are complicated. You went for complicated.

    Anyway, your theory might hold if supply of lower priced ones were restricted to day time sales and bags BO and B2 were the only ones allowed at night. But where;s the evidence!!?? Are students capable of discriminating at that time of night (or day)?

  2. rauparaha
    rauparaha says:

    If it’s a mistake then it’s a very smart mistake! I hope they learn from it and continue to increase total surplus for the good of the nation 🙂

  3. Matt Nolan
    Matt Nolan says:

    @insider

    Not necessarily, as long as there is some sort of capacity constraint we know that this could well be a profit maximising move. If the 0.65c bit was always full, then it would just be weird.

    I wouldn’t say this is a complicated explanation – to be honest I thought of it BEFORE I thought it could be a mistake. Then again, my brain is programmed for sexy economics.

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