I don't agree with the idea that giving companies better and better tools to achieve price discrimination is the win-win that the final quote seems to make it out to be. Yes, I can see how it could allow a company to offer goods to people who otherwise would not be able to access their services, but this comes at the cost of potentially complicated usage restrictions, making it easier for incumbents to squash new competitors, and pushing for more and more of a legal framework to support this kind of business model at the expense of the end user. I can think of examples where the products are barely (if at all) worse and see how heavily it swings things in favour of the powerful incumbent:
Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch.
DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around.
License agreements on software not to restrict specific functionality, but rather the usage scenarios.
The example in the article of the slower LaserPrinter example morphs from being a physical restriction to modern printer cartridges that block ink refills via DRM.
Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills.
Even the recent EpiPen drama, where they want to be able to milk as much as possible out of the pockets of insurance companies, but end users don't want to play the real price, so they introduce the co-pay discount to try and offset that cost. It makes the "rich" organisation pay, but reduces the amount paid by an individual.
If a game cost say 50$ they sell approximately zero of them in India. Dropping that to 5$ does not mean they sell 10x as many worldwide thus company keeps the higher price. If they can sell them for 5$ just in India they may sell 10x as many in India which is good for people in India and the Company. But, people in US are never getting 5$ disks either way. Making this a net win.
The counter argument is price discrimination often operates inside a country. Coupons are the classic example, but clearly Coupons are a net economic loss.
Which IMO suggests we should have limits on the kind of acceptable price discrimination.
Pricing products differently in different countries is all about charging whatever people will pay for something, in order to maximize profit.
Australia's minimum wage is ~$16/hr, so Adobe products, Apple, even online downloads cost a lot more than the US, because people in Australia have more money to spend.
When the citizens of a country have a lot of spending money, international companies charge them more than in countries where the citizens don't have a lot of money.
Viewed this way, it's really interesting to note that "stuff" (cars, laptops, phones, beer, smokes) is cheaper in America than any other developed country in the world. This is an interesting way to come to the conclusion that the average American citizen has less spending money than the average developed country citizen
Good points and examples here, since the article doesn't address these common types of scenarios at all. Some are less problematic, but others do present significant issues. Here's my take:
> Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch.
The case law on this is mixed. the Costco-Omega case [1] was a 4-4 decision that bears no precedential weight, and is from the 9th Circuit (this means it could be cited but is not binding on lower courts). It was decided in favor of Omega, which sought to prevent importation by Costco, notwithstanding the First Sale Doctrine (which generally says that after you buy a copyrighted article, you can do what you want with it). If this were a binding case from a high court, this would be bad. It is much less unfortunate because it is not binding, and because a subsequent case from a higher court went differently.
The textbook case (Kirtsaeng-Wiley) went the other way, and allowed importation [2]. This was a US Supreme Court case and was decided by a majority. So on balance, the law on this seems to impair the effectiveness of price discrimination, which is good for the consumer. This case did not overrule the Omega case, which was factually distinguishable, so this doesn't mean that there aren't still potential issues lurking.
> DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around.
DVD region locking, and especially the DMCA overlay, is definitely problematic. This applies equally to printer cartridge refills. The only potential benefit for consumers is that printer companies (and their analogs in other industries) can make printers less expensive, so that more people can afford them. If they couldn't lock you in to their ink cartridges, then they would have to charge more up-front. The counterargument to this is that many people don't understand the cost structure and end up locked in. Some printers even come with part-full cartridges, which is particularly deceptive.
> License agreements on software not to restrict specific functionality, but rather the usage scenarios.
This sort of thing can be done in "bad" ways, but it can also be done to offer academic discounts, discounts for small startups/businesses (think Slack's model). I'm not sure how one would draw the line between beneficial and nefarious applications of this model.
> Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills.
Completely agree—this relates to there being a monopoly in many areas, which throws everything out of whack. Consumers definitely lose here, on the whole. (This is also why I wrote this article [3] about one way to hedge this problem.)
> Even the recent EpiPen drama...
This is mostly a problem because of the way health insurance presents a principal-agent problem. The person making the decision (insured) is not the person paying for them (insurance company). This definitely creates problems. It is arguably a good thing that medical device/drug companies can offer discounts to lower-income folks. On the whole, not sure how to weigh the pros/cons in the medical industry generally.
> Today Eurostar offers a ticket that uses Dupuit’s logic. It offers ultra-cheap tickets that do not specify the time of travel (this is revealed two days before the trip takes place). Adding uncertainty to a traveller’s itinerary is a reduction in quality. But it is useful because it forces business travellers – who must be in London or Paris at a specific time – away from this bargain option.
This doesn't seem like quite the same thing. Eurostar makes a real saving on their "manufacturing" here - they can give the customer a seat on whichever train has space, rather than having to allocate them a seat ahead of time and maybe fill up a train and drive potential customers to fly instead.
It does both at the same time. It allows them to service less time sensitive customers or extremely price sensitive customers without losing revenues as they would if the cheaper ticket didn't have the large downside of travel time uncertainty. So it's the same thing with an added bonus of decreasing the potential need to run more trains.
That was my thought as well. A better example would be if the third class seats had less padding, despite the expense of a more comfortable level of padding being the same.
This article reminds me of an article on Unpleasant Design that has been posted on Hacker News before:
If their intent was only to distribute passengers evenly they could simply use demand-based pricing like most rail networks. There's no reason to introduce additional randomness other than price differentiation.
The hypothesis that you would have excess supply is not very well thought out.
Take the train example that he mentioned. He is effectively suggesting that higher margin 2nd class tickets subsidize 3rd class tickets. Companies may be afraid to improve 3rd class, thinking it would eat into their 2nd class and lower profits. But they would very likely just sell more tickets, as their 3rd class was now the best in the business. And provided there were an actual differentiated service in 2nd class, those tickets would still sell. And if the was no difference, they could eliminate 3rd class altogether and sell second class only for greater volume and slightly lower price (or make 2nd class improvements).
Cannibalization is no problemo for business. Some folks at Apple were afraid the iphone would cannibalize ipod sales. Imagine if they actually went with that thinking and sold iphones that didn't play music. And iPods still sell to this day.
Unless the sector has high barrier to entry (e.g. Intel), such practices are very often short sighted. You don't see IBM selling printers anymore.
> But they would very likely just sell more tickets, as their 3rd class was now the best in the business.
IMO, you're simply begging the question by presuming that 2nd class won't be cannibalized.
We're also forgetting that one can't simply increase ticket supply, because trains and airlines are capital constrained once you run out of seats. At best, you can hope to charge more for 3rd-class tickets, at the expense of having cheaper, or empty, or fewer 2nd-class seats.
Even if a company manages to raise price of 3rd-class tickets, they face both a 1) lower effective subsidy from 2nd class and 2) the cost of providing 3rd-class amenities. Which effect dominates very well depends on the relative preferences of 2nd and 3rd-class buyers.
The sweet spot is to find an inconvenience that only affects 3rd-class ticket-holders a little bit, but annoys 2nd-class ticket-holders a lot.
The Eurostar is a good example of that -- most people aren't inconvenienced too much by being told their flight time 2 days in advance (so depresses economy ticket prices only slightly), but deep-pocketed business travelers find it completely unacceptable (which shifts effective demand to the business seats).
I wonder if the printer example is the right example. Perhaps IBM was merely test-marketing and planned to use cheaper parts if the printer was a hit? (I don't know much about IBM printers.)
In the semiconductor industry, often cheaper chips are the same chip is the expensive chip, but because it didn't test as well, features are disabled or the chip is intentionally sold at a lower clock speed.
IMO, I would call intentionally crippling a product a win-win-win situation if it's basically test-marketing that leads to lower manufacturing costs. (This only works if people don't catch on and hack the product to re-enable the disabled features.)
The author describes how companies cripple their own product to extract "maximum profit from each punter," but does not say why this is good for the customers. Presumably, most of the profits are funnelled to shareholders.
> The key test is whether the practice means more goods are sold. Suppose the French had regulated trains so that all carriages had roofs. All those in second class might have switched to third class, potentially rendering both uneconomical to provide.
Could not there be a third option where the quality is not crippled so much but priced such that there is an increase in both supply and demand for a reasonable ride? In the current scenario, business chugs along, with lower-tier customers settling for an inferior product and upper-tier customers extorted to the maximum extent.
You're right—the author doesn't really address this. If a business is unable to price discriminate by adding or removing features, they will end up having to pick either (1) high price or (2) low price. [Stylized example, of course]
If they pick High Price, then they will include lots of features, but only people with a high willingness to pay and high ability to pay will end up purchasing the product. This means that people who would have been willing to purchase the low-end version of the product do not have that option and will instead purchase no product.
If the company picks Low Price, they will not include as many features because (in many cases) there is not sufficient profit incentive. This means that even customers who would have been willing to pay for these features cannot purchase them.
Ultimately, the assumption is that if customers are interested in making a purchase of a "crippled" or "feature-enhanced" product, and the company is willing to make that exchange, then the exchange makes both parties better off. This is what economists call "gains from trade."
Does this mean that everyone customer is better off with price discrimination under every circumstance, or that one cannot imagine a way in which a company could operate altruistically in order to make some customers better off? No. But generally they won't, and this is typically tied to the company's duty to their shareholders. (This is why B-Corps are nice—they give more flexibility in this regard.)
This is why liberal economics are such a conservative force. Their hide moral arguments by embedding them in a loop: "this how things are, there are some good things, so how things are is good". Then they also use the argument the other way around and in the end, there is no way to bring up the possibility of change or challenging the status quo: "What? You don't like how things are? Poor thing, cheer up! Maybe you are not trying hard enough?". The underlying truth is that how things are is good for them and the capitalists that fund them. Then they will rationalize whatever excuse to pretend that it is also good for the rest of us.
The valuable thing here is information. You can't have perfect information in such situation, because people say different things than what they actually pay.
If you have very little competition, then correct pricing is relatively less important. In high competition enviroment several price points help to reach the "right" quantity and price fast.
And in high competition enviroment, shareholders see very little of it.
Price discrimination has always been fundamental aspect of business and economics: companies often offer different "values" different price points.
BUT, software businesses have another aspect many physical product & service companies do not: the ongoing cost of maintenance and support for legacy applications, and the (typically) increasing cost to add new features.
Consider the opening example: Microsoft Outlook. It's highly likely that Microsoft was motivated by cost issues, and was not executing a deliberate de-feature move.
They still have to maintain Outlook whether or not it's in the lower cost option. You could argue that they might save a tiny bit in support, but I'd be surprised if it was a relevant amount.
In the case of physical products, the answer is pretty obvious - products that last = fewer sales. So companies try to find the balance between lifetime and turnaround time to typical replacement/repurchase.
I refused to do that when I did induction and LED lighting. My products are still in use by the people that bought them. I don't expect them to need a replacement for 20 years. Maybe by then I'll be back in the lighting business.
486dx/sx anyone? Here the maths coprocessor was not wired up in the budget version. Yield had as much to do this as marketing.
Lame Teslas. If you want auto drive and to use all those battery cells then pay extra. The mass production can be extra efficient plus upsells are possible as the customer can pay for the upgrade later.
1000 hour light bulb. The cartel of lightbulbs required bulbs to last a lot less. Worse product, more repeat sales, rigged market.
The smaller chocolate bar. To hit a price point, e.g. a dollar/pound/euro the product can be made worse or smaller.
The cheap board game. Times have changed, people play a board game once and it goes in the bin. Before TV the product would have been played year round and passed on to the next generation. There is no need to build a product to that standard any more.
Patents expire too, this means products get worse.
Changing laws. Imagine that you can no longer use bright food colours, the product gets worse.
This article didn't address anything I didn't know of and made no mention of what is obvious.
You can get rough service lamps that last 10,000hrs but they are slightly more than 10x the price due to better construction of other non-filament parts (thicker glass, better filament support, etc).
I suspect its more of a tragedy of the commons type thing with pricing.
Some people when buying products always go with the cheapest initial purchase price regardless of how good of an idea it is. In other cases features beyond the industry norm can actively harm reviews of the product as too many people will misunderstand the feature. A game recently[0] let people set the max draw distance much higher than comparable games. It was blasted in reviews for being "poorly optimized". When the developers reduced the max draw distance by ~50% people started praising them for doing a good job optimizing for that patch when they actually crippled a feature.
Light bulbs aren't such a clear example. Incandescent filaments are much more efficient at higher temperature but burn out quicker. In the general case, savings from reduced electricity cost more than offset the increased replacemet rate for bulbs in accessible fixtures.
I fear many economists have the mentality of child prodigies; brilliant, extremely clever and very unwise. On a planet (<-- maybe note this) with limited surface-space and resources, and with growing populations with growing standards and demands, the paradigm of Planned Obsolescence(PO) is going to be exceedingly difficult to sustain. Aside from the physical limitations (see: Pacific Ocean plastic island, wars for resources, ocean acidification, climate change, etc., etc.) facing this paradigm of PO, the social costs generally go overlooked. Whether it is a reluctantly accepted 'necessary evil', or something merely conveniently ignored, there is something dishonest at the root of PO, which may have the collective effect of promoting a dishonest society. Perhaps some here can laud the virtues of the Phoebus Cartel[1], or any number of other such rackets - there are clear short-term benefits. But it seems terribly unlikely that a strong and trusting society will ever be more than ephemerally forged from this material. The PO paradigm also seems to lend itself generously to the Hegelian Dialectic while contributing ineffectuality to the masses, demarcating Consumers from Providers. I'd like to see economists explore the advantages of local economy more often.
It's a complex world that's unraveled, one where our popular methods of survival can be perfectly legal, unethical, hypocritical and irrational simultaneously, and the ensuing conflicts arising therefrom, conveniently viewed and treated as isolated. I think Adam Curtis's The Century of the Self[2] offers a bit of insight on where things starting going silly, and some of the mechanisms involved.
While the article may not be directly supporting PO as a paradigm, it gets uncomfortably close. Planned Obsolescence is great fun and games for a while, but I think the final results are predictably grim. There are definitely great challenges in maintaining a thriving economy without enslaving ourselves to endless consumerism, but these challenges must be faced. PO isn't the way.
Planned Obsolence is also beneficial in some cases. Many products are significantly more energy efficient although they function the same(fridge and cars come to mind).
In the software realm, plenty of software that should have been replaced or constantly updated chugs along managing critical infrastructure. Old hardware compatible with such systems get rarer thus raising operating costs and difficulty in servicing.
THe Phoebus Cartel was some major bullshit hence laws against price fixing were passed. These days trade is global so smuggling products from other countries is easy...unlike in 1939 where you only had a few stores/vendors to choose from who sold lightbulbs.
The modern version is vendor lock-in(see microsoft, sony, and apple which love this): hopefully this philosophy dies in the long run.
Unless there's a breaking point of "good enough" that can serve all segments.
Typically though, this "making the product worse" thing is used as part of the sales cycle of a patented product. There has to be some "proprietary" piece (whether a large up-front investment in infrastructure or a new technology) or else it's a commodity and this type of segmentation doesn't work.
There was recently Onnibus in Finland. They sold cramped two storey bus trips at very limited lanes. First ticked sold at 1e and price going up so that the last goes for 35e or something. Similar to cheap air travel schemes. You extract more accurate info as it's not just two price points but a curve of ticket-price/time.
So far the result has been all bus services lowering prices, train tickets going lower too and overall people traveling more. It was needed price cut as some people we're switching to air travel as plane ticket was cheaper than train.
There is a result in microeconomics that if you ban price discrimination from a previously discriminating firm, there was a always an alternative policy (specifying a maximum profit margin the firm can achieve but placing no restrictions on price discriminations) that would have lead to strictly greater welfare gains.
This is ignoring competitive and redistributive effects, but the competitive implications should be positive (higher profits encourage competition) and this tool is sufficiently blunt for it to be unlikely to be the optimal feasible redistributive mechanism.
It is, of course, rather difficult to cap the profit margin of a company in the real world, both for political reasons and due to the difficulty of actually defining profit.
I fail to understand how it becomes economically viable to sabotage a product like this.
A third class is a form of subsidy, it will be sold at a loss.
I don't think having a train company decide for the date of your trip a choice. It's just that train management is expensive, so if you remove the date constraint, everything is simpler, because you can fill an entire train that will travel a certain week, instead of having to deal with the uncertainty of a train which is not entirely full.
Bahumbug. Another lame attempt to justify greed at the expense of others. Not to mention the added resource use and pollution. The Profit motive isnt always right, correct or optimal.
Airlines. I seriously believe that market has hit a low-cost saturation point. They are now actively making their most common product worse, more painful and difficult to use, in order to sell upgraded versions.
I wish I could read an article on why Apple insists on, version by version, making their software worse. E.g. recently released Safari 10 inexplicably removes the Accessibility preference to "Never use font sizes smaller than ...".[1]
Unfortunately you won't find anything informative like that in this article. Instead you get examples such as why in 1849 French railways offered three classes of travel, and why the lowest tier was deliberately very bad. That doesn't really help explain current practices (unless Apple inexplicably wants to force me to use Firefox instead of Safari?).
[1] fortunately the internets have already discovered a command line workaround, but should that really have been necessary?
Advertising non-existent cheaper but lower-quality alternatives is a by-product of actually having those alternatives in an industry. When a hotel advertises budget hotel rooms in its front window, but tells walk-ins that they're sold out and only the more expensive larger ones are available, that hotel is cashing in on the tiered quality-price phenomenon with a bait-and-switch ploy. Such "lying" is merely a by-product, not the product itself.
And in fact such by-products needn't even be based on "lying", such as when a business "withdraws" its cheaper alternative by changing the rules of purchase, e.g. requiring the customer to buy a high-markup item at the same time.
[+] [-] klagermkii|9 years ago|reply
Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch.
DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around.
License agreements on software not to restrict specific functionality, but rather the usage scenarios.
The example in the article of the slower LaserPrinter example morphs from being a physical restriction to modern printer cartridges that block ink refills via DRM.
Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills.
Even the recent EpiPen drama, where they want to be able to milk as much as possible out of the pockets of insurance companies, but end users don't want to play the real price, so they introduce the co-pay discount to try and offset that cost. It makes the "rich" organisation pay, but reduces the amount paid by an individual.
[+] [-] Retric|9 years ago|reply
If a game cost say 50$ they sell approximately zero of them in India. Dropping that to 5$ does not mean they sell 10x as many worldwide thus company keeps the higher price. If they can sell them for 5$ just in India they may sell 10x as many in India which is good for people in India and the Company. But, people in US are never getting 5$ disks either way. Making this a net win.
The counter argument is price discrimination often operates inside a country. Coupons are the classic example, but clearly Coupons are a net economic loss.
Which IMO suggests we should have limits on the kind of acceptable price discrimination.
[+] [-] grecy|9 years ago|reply
Australia's minimum wage is ~$16/hr, so Adobe products, Apple, even online downloads cost a lot more than the US, because people in Australia have more money to spend.
When the citizens of a country have a lot of spending money, international companies charge them more than in countries where the citizens don't have a lot of money.
Viewed this way, it's really interesting to note that "stuff" (cars, laptops, phones, beer, smokes) is cheaper in America than any other developed country in the world. This is an interesting way to come to the conclusion that the average American citizen has less spending money than the average developed country citizen
[+] [-] gnicholas|9 years ago|reply
> Trademark restrictions to prevent importing what could be effectively the same textbook or wrist watch.
The case law on this is mixed. the Costco-Omega case [1] was a 4-4 decision that bears no precedential weight, and is from the 9th Circuit (this means it could be cited but is not binding on lower courts). It was decided in favor of Omega, which sought to prevent importation by Costco, notwithstanding the First Sale Doctrine (which generally says that after you buy a copyrighted article, you can do what you want with it). If this were a binding case from a high court, this would be bad. It is much less unfortunate because it is not binding, and because a subsequent case from a higher court went differently.
The textbook case (Kirtsaeng-Wiley) went the other way, and allowed importation [2]. This was a US Supreme Court case and was decided by a majority. So on balance, the law on this seems to impair the effectiveness of price discrimination, which is good for the consumer. This case did not overrule the Omega case, which was factually distinguishable, so this doesn't mean that there aren't still potential issues lurking.
> DVD region locking where you can sell practically an identical product but charge vastly different rates in different areas, and it's illegal to work around.
DVD region locking, and especially the DMCA overlay, is definitely problematic. This applies equally to printer cartridge refills. The only potential benefit for consumers is that printer companies (and their analogs in other industries) can make printers less expensive, so that more people can afford them. If they couldn't lock you in to their ink cartridges, then they would have to charge more up-front. The counterargument to this is that many people don't understand the cost structure and end up locked in. Some printers even come with part-full cartridges, which is particularly deceptive.
> License agreements on software not to restrict specific functionality, but rather the usage scenarios.
This sort of thing can be done in "bad" ways, but it can also be done to offer academic discounts, discounts for small startups/businesses (think Slack's model). I'm not sure how one would draw the line between beneficial and nefarious applications of this model.
> Comcast's battle with Google Fibre where the price will heavily drop in just the areas where Google Fibre operates. Makes it much harder for Google Fibre to make any gains, but the vast majority of Comcast customers see no decrease in their bills.
Completely agree—this relates to there being a monopoly in many areas, which throws everything out of whack. Consumers definitely lose here, on the whole. (This is also why I wrote this article [3] about one way to hedge this problem.)
> Even the recent EpiPen drama...
This is mostly a problem because of the way health insurance presents a principal-agent problem. The person making the decision (insured) is not the person paying for them (insurance company). This definitely creates problems. It is arguably a good thing that medical device/drug companies can offer discounts to lower-income folks. On the whole, not sure how to weigh the pros/cons in the medical industry generally.
1 https://en.wikipedia.org/wiki/Omega_S.A._v._Costco_Wholesale...
2 https://en.wikipedia.org/wiki/Kirtsaeng_v._John_Wiley_%26_So...
3 https://medium.com/@nicklum/how-my-hatred-of-comcast-drove-m...
[+] [-] lmm|9 years ago|reply
This doesn't seem like quite the same thing. Eurostar makes a real saving on their "manufacturing" here - they can give the customer a seat on whichever train has space, rather than having to allocate them a seat ahead of time and maybe fill up a train and drive potential customers to fly instead.
[+] [-] rtkwe|9 years ago|reply
[+] [-] Declanomous|9 years ago|reply
This article reminds me of an article on Unpleasant Design that has been posted on Hacker News before:
https://news.ycombinator.com/item?id=12041639
[+] [-] IshKebab|9 years ago|reply
[+] [-] lsiq|9 years ago|reply
Take the train example that he mentioned. He is effectively suggesting that higher margin 2nd class tickets subsidize 3rd class tickets. Companies may be afraid to improve 3rd class, thinking it would eat into their 2nd class and lower profits. But they would very likely just sell more tickets, as their 3rd class was now the best in the business. And provided there were an actual differentiated service in 2nd class, those tickets would still sell. And if the was no difference, they could eliminate 3rd class altogether and sell second class only for greater volume and slightly lower price (or make 2nd class improvements).
Cannibalization is no problemo for business. Some folks at Apple were afraid the iphone would cannibalize ipod sales. Imagine if they actually went with that thinking and sold iphones that didn't play music. And iPods still sell to this day.
Unless the sector has high barrier to entry (e.g. Intel), such practices are very often short sighted. You don't see IBM selling printers anymore.
[+] [-] smallnamespace|9 years ago|reply
IMO, you're simply begging the question by presuming that 2nd class won't be cannibalized.
We're also forgetting that one can't simply increase ticket supply, because trains and airlines are capital constrained once you run out of seats. At best, you can hope to charge more for 3rd-class tickets, at the expense of having cheaper, or empty, or fewer 2nd-class seats.
Even if a company manages to raise price of 3rd-class tickets, they face both a 1) lower effective subsidy from 2nd class and 2) the cost of providing 3rd-class amenities. Which effect dominates very well depends on the relative preferences of 2nd and 3rd-class buyers.
The sweet spot is to find an inconvenience that only affects 3rd-class ticket-holders a little bit, but annoys 2nd-class ticket-holders a lot.
The Eurostar is a good example of that -- most people aren't inconvenienced too much by being told their flight time 2 days in advance (so depresses economy ticket prices only slightly), but deep-pocketed business travelers find it completely unacceptable (which shifts effective demand to the business seats).
[+] [-] gwbas1c|9 years ago|reply
In the semiconductor industry, often cheaper chips are the same chip is the expensive chip, but because it didn't test as well, features are disabled or the chip is intentionally sold at a lower clock speed.
IMO, I would call intentionally crippling a product a win-win-win situation if it's basically test-marketing that leads to lower manufacturing costs. (This only works if people don't catch on and hack the product to re-enable the disabled features.)
[+] [-] hatmatrix|9 years ago|reply
> The key test is whether the practice means more goods are sold. Suppose the French had regulated trains so that all carriages had roofs. All those in second class might have switched to third class, potentially rendering both uneconomical to provide.
Could not there be a third option where the quality is not crippled so much but priced such that there is an increase in both supply and demand for a reasonable ride? In the current scenario, business chugs along, with lower-tier customers settling for an inferior product and upper-tier customers extorted to the maximum extent.
[+] [-] gnicholas|9 years ago|reply
If they pick High Price, then they will include lots of features, but only people with a high willingness to pay and high ability to pay will end up purchasing the product. This means that people who would have been willing to purchase the low-end version of the product do not have that option and will instead purchase no product.
If the company picks Low Price, they will not include as many features because (in many cases) there is not sufficient profit incentive. This means that even customers who would have been willing to pay for these features cannot purchase them.
Ultimately, the assumption is that if customers are interested in making a purchase of a "crippled" or "feature-enhanced" product, and the company is willing to make that exchange, then the exchange makes both parties better off. This is what economists call "gains from trade."
Does this mean that everyone customer is better off with price discrimination under every circumstance, or that one cannot imagine a way in which a company could operate altruistically in order to make some customers better off? No. But generally they won't, and this is typically tied to the company's duty to their shareholders. (This is why B-Corps are nice—they give more flexibility in this regard.)
[+] [-] arximboldi|9 years ago|reply
[+] [-] vlehto|9 years ago|reply
If you have very little competition, then correct pricing is relatively less important. In high competition enviroment several price points help to reach the "right" quantity and price fast.
And in high competition enviroment, shareholders see very little of it.
[+] [-] payne92|9 years ago|reply
Price discrimination has always been fundamental aspect of business and economics: companies often offer different "values" different price points.
BUT, software businesses have another aspect many physical product & service companies do not: the ongoing cost of maintenance and support for legacy applications, and the (typically) increasing cost to add new features.
Consider the opening example: Microsoft Outlook. It's highly likely that Microsoft was motivated by cost issues, and was not executing a deliberate de-feature move.
[+] [-] tensor|9 years ago|reply
[+] [-] lightedman|9 years ago|reply
I refused to do that when I did induction and LED lighting. My products are still in use by the people that bought them. I don't expect them to need a replacement for 20 years. Maybe by then I'll be back in the lighting business.
[+] [-] lucaspiller|9 years ago|reply
[+] [-] npezolano|9 years ago|reply
[+] [-] Theodores|9 years ago|reply
486dx/sx anyone? Here the maths coprocessor was not wired up in the budget version. Yield had as much to do this as marketing.
Lame Teslas. If you want auto drive and to use all those battery cells then pay extra. The mass production can be extra efficient plus upsells are possible as the customer can pay for the upgrade later.
1000 hour light bulb. The cartel of lightbulbs required bulbs to last a lot less. Worse product, more repeat sales, rigged market.
The smaller chocolate bar. To hit a price point, e.g. a dollar/pound/euro the product can be made worse or smaller.
The cheap board game. Times have changed, people play a board game once and it goes in the bin. Before TV the product would have been played year round and passed on to the next generation. There is no need to build a product to that standard any more.
Patents expire too, this means products get worse.
Changing laws. Imagine that you can no longer use bright food colours, the product gets worse.
This article didn't address anything I didn't know of and made no mention of what is obvious.
[+] [-] extrapickles|9 years ago|reply
I suspect its more of a tragedy of the commons type thing with pricing.
Some people when buying products always go with the cheapest initial purchase price regardless of how good of an idea it is. In other cases features beyond the industry norm can actively harm reviews of the product as too many people will misunderstand the feature. A game recently[0] let people set the max draw distance much higher than comparable games. It was blasted in reviews for being "poorly optimized". When the developers reduced the max draw distance by ~50% people started praising them for doing a good job optimizing for that patch when they actually crippled a feature.
[0]: Dying Light part of http://www.pcgamer.com/what-optimization-really-means-in-gam...
[+] [-] spqr0a1|9 years ago|reply
[+] [-] walshemj|9 years ago|reply
[+] [-] eth0up|9 years ago|reply
It's a complex world that's unraveled, one where our popular methods of survival can be perfectly legal, unethical, hypocritical and irrational simultaneously, and the ensuing conflicts arising therefrom, conveniently viewed and treated as isolated. I think Adam Curtis's The Century of the Self[2] offers a bit of insight on where things starting going silly, and some of the mechanisms involved.
While the article may not be directly supporting PO as a paradigm, it gets uncomfortably close. Planned Obsolescence is great fun and games for a while, but I think the final results are predictably grim. There are definitely great challenges in maintaining a thriving economy without enslaving ourselves to endless consumerism, but these challenges must be faced. PO isn't the way.
1. https://en.wikipedia.org/wiki/Phoebus_cartel 2. https://en.wikipedia.org/wiki/The_Century_of_the_Self
[+] [-] ryuker16|9 years ago|reply
In the software realm, plenty of software that should have been replaced or constantly updated chugs along managing critical infrastructure. Old hardware compatible with such systems get rarer thus raising operating costs and difficulty in servicing.
THe Phoebus Cartel was some major bullshit hence laws against price fixing were passed. These days trade is global so smuggling products from other countries is easy...unlike in 1939 where you only had a few stores/vendors to choose from who sold lightbulbs.
The modern version is vendor lock-in(see microsoft, sony, and apple which love this): hopefully this philosophy dies in the long run.
[+] [-] SmokyBorbon|9 years ago|reply
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[+] [-] walterbell|9 years ago|reply
[+] [-] exelius|9 years ago|reply
Typically though, this "making the product worse" thing is used as part of the sales cycle of a patented product. There has to be some "proprietary" piece (whether a large up-front investment in infrastructure or a new technology) or else it's a commodity and this type of segmentation doesn't work.
[+] [-] vlehto|9 years ago|reply
So far the result has been all bus services lowering prices, train tickets going lower too and overall people traveling more. It was needed price cut as some people we're switching to air travel as plane ticket was cheaper than train.
[+] [-] hrxn|9 years ago|reply
[+] [-] hatmatrix|9 years ago|reply
[1] https://en.wikipedia.org/wiki/Multi-licensing
[2] https://en.wikipedia.org/wiki/Freemium
[+] [-] oli5679|9 years ago|reply
http://www.sciencedirect.com/science/article/pii/S0165176597...
This is ignoring competitive and redistributive effects, but the competitive implications should be positive (higher profits encourage competition) and this tool is sufficiently blunt for it to be unlikely to be the optimal feasible redistributive mechanism.
[+] [-] makomk|9 years ago|reply
[+] [-] jokoon|9 years ago|reply
A third class is a form of subsidy, it will be sold at a loss.
I don't think having a train company decide for the date of your trip a choice. It's just that train management is expensive, so if you remove the date constraint, everything is simpler, because you can fill an entire train that will travel a certain week, instead of having to deal with the uncertainty of a train which is not entirely full.
Ouigo do that in France.
[+] [-] unknown|9 years ago|reply
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[+] [-] sickbeard|9 years ago|reply
[+] [-] fyhhvvfddhv|9 years ago|reply
[+] [-] sandworm101|9 years ago|reply
[+] [-] PhantomGremlin|9 years ago|reply
Unfortunately you won't find anything informative like that in this article. Instead you get examples such as why in 1849 French railways offered three classes of travel, and why the lowest tier was deliberately very bad. That doesn't really help explain current practices (unless Apple inexplicably wants to force me to use Firefox instead of Safari?).
[1] fortunately the internets have already discovered a command line workaround, but should that really have been necessary?
[+] [-] brbrodude|9 years ago|reply
[+] [-] vorg|9 years ago|reply
And in fact such by-products needn't even be based on "lying", such as when a business "withdraws" its cheaper alternative by changing the rules of purchase, e.g. requiring the customer to buy a high-markup item at the same time.
[+] [-] sctb|9 years ago|reply
[+] [-] icebraining|9 years ago|reply