I just read The Armchair Economist by Steven E. Landsburg which was supplemental to the Microeconomics textbook I use for class. I'd definitely suggest it to anyone who has an interest in economics but is more of a beginner. Or you can check out his blog The Big Questions.A word of caution should be advised as Landsburg is very contrarian in his work and some of the ideas presented will definitely offend some people. I don't know enough about economics to support or criticize his ideas, but I really enjoy how they make me think.One of the big ideas of Microeconomics is price discrimination. The way I understand it, price discrimination works by transferring some of the consumer surplus to the producer. It does this by charging higher prices for a good to people who are willing to pay higher prices, and lower prices to people who would only buy the product at lower prices. If the price were higher but constant, the low-price people would not buy the product at all.
One of the examples in the book was a company (can't remember which) that sold both a high speed and low speed printer. It sold the high speed version for $1500 (this was the 90's I think), and then it added a device that made the printer slower and sold that version for $1000. The two versions cost exactly the same to produce, yet one had been made intentionally worse and sold for a lower price. The people who wanted a high speed printer and had the money would buy the more expensive version, while the people who were more uncertain about either their need or ability to buy a printer would buy the cheaper version. The company makes more profit this way than it would by selling only the high speed one at either $1500 or $1000. Interesting. Price discrimination is everywhere if you look for it. Airlines do it regularly (ever wonder why a ticket for a connecting flight costs less even though the distance the plane takes you is longer than a direct flight?), as do colleges (if both tuition and financial aid are rising, what does that tell you?).
Anyway I was at the grocery store the other day and stopped for a bit to look at the egg selection. Most of the eggs were from a company called Little Rhody's, while the rest were from a larger brand name. Little Rhody's was selling 6 different types of eggs. There was Large White Eggs ($2.59)*, Extra Large White ($2.79), Large Local Eggs ($2.79), Extra Large Local ($2.99), Jumbo Large Local ($3.19), and Vegetarian Fed Large ($3.19).
In order for a company to price discriminate they must have something resembling monopoly power (or else competitors will compete the high price down), and the product must not be able to be sold once it is bought (the people who bought at the low price would just resell the product at a price between the low price and the high price). So two things to consider: the grocery store was mostly dominated by Little Rhody's brand, and I doubt anyone would buy eggs from a stranger on the street. Then is this price discrimination? For sure some of the eggs do cost more to produce, as larger eggs must be produced by larger hens who eat more food, but how much of that extra cost is production cost and how much is discrimination? Does vegetarian feed cost that much more? There was also cage-free eggs from the other brand that cost something like $3.49. I think I can see how extra production cost accounts for the price disparity in this case, but what about local eggs vs. outsourced eggs? Kind of makes you think about whats truly going on when we choose more ethically minded products.
Sometimes I think that half the reason to buy any product that is "ethical" or "green" is because it costs more. If the more "ethical" product cost the same as the other choices I'd probably still buy it, but would I feel as good when I'm eating the eggs? Did I do my good deed for the day? Is it still morally right if I do something only because it gives me a release of dopamine?
I bought Extra Large Local.
*Most of these pries I remember well, while a couple are best guesses
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