Comment by WalterBright
16 hours ago
> This isn't government setting prices. It's just government outlawing a certain form of price discrimination.
I.e. the government is regulating prices, yet another attempt going on for 4,000 years of trying and failing to repeal the Law of Supply and Demand.
> The grocery stores aren't going to raise the overall price to compensate for losing the ability to price discriminate: that would result in less profit for them.
Allow me to explain how prices are set:
Consider an appliance store. They want to sell refrigerators. What do they do? They have 3 refrigerator lines - the stripper, the midline, and the lux. The purpose of the stripper is that is what they advertise, to bring customers into the store. The purpose of the midrange is to upsell those who come for the stripper, as they think the extra features are worth it. The lux is sold to the wealthy customers who just want to buy the best. (Not having a lux is means the retailer is throwing easy money away.)
The moneymaker is the midrange.
You'll see the same thing in the grocery store. The store advertises the price of milk, which is likely at below cost (called a "loss leader"). People come to buy the milk, which is always on the back wall of the store. The customer has to pass by all kinds of things to get to the milk, and they'll buy it. The most overpriced stuff will be next to the checkout line.
Cheeses come in cheap, midrange, and lux, too.
There's been an extensive amount of research on exactly how to set up the store to maximize profits, which is necessary as grocery stores have razor thin margins.
BTW, the article is paywalled. I have no idea how a grocery store is going to adjust prices at checkout, as the prices are marked.
> the government is regulating prices
The government is regulating one particular thing that many sellers try to do (price discrimination). But it is not preventing sellers from adjusting their prices based on supply and demand. The seller can still set price equal to marginal cost--i.e., where the supply and demand curves cross--to maximize profit. They just can't extract further profit by charging richer customers more than marginal cost to transfer the consumer surplus to themselves.
> Allow me to explain how prices are set
Spare me your patronizing. I already referred to a textbook on price theory elsewhere in the thread. I know how it works. That should be evident from what I posted above and earlier in the thread.
None of what you describe is price discrimination--nor is any of it outlawed by the law under discussion here. You are describing marketing strategies involving different products--different levels of quality. Of course sellers do those things all the time, and they can continue to do it under this law.
What the law under discussion here outlaws is charging different customers different prices for the same product--for example, the appliance store you describe charging the rich person a higher price for the same refrigerator--say the midline--than the average middle class person. It says nothing whatever about the rich person paying more for a better refrigerator--the lux--than the average middle class person pays for the midline.
As you can negotiate prices at an appliance dealership, obviously people pay different prices for the same thing. The prices at the grocery store change daily, obviously people are paying different prices for the same thing. The guy you sit next to on an airplane paid a different price than you did. The pump price at the gas station can change hourly.
> They just can't extract further profit by charging richer customers more than marginal cost to transfer the consumer surplus to themselves.
The demand curve is different for every customer.
It is fraudulent to charge more than the posted price. But absent that, it's a negotiated price.
BTW, do you also feel it is unfair if a store charges a person less if the store realizes the person is a bit needy?
Just for fun, watch the movie "Back To School" starring Rodney Dangerfield. The funniest bit in it is when Dangerfield (a real estate developer) lectures the business professor on how business really works.
I've run multiple businesses. It's pretty clear that I did not have any power over the customers. I could not just raise prices and "extract" more profit, much as I would have liked to. It's hard to make money running a business. Businesses go bust all the time. I wouldn't pay too much attention to a business professor who had never run a business.
> The demand curve is different for every customer.
No, the price the customer is willing to pay for a given product is different for every customer. But the demand curve is just the aggregate of all that--how many customers are willing to pay a given price for the product, as a function of the price. There are different demand curves for different products, but the notion that there is a different demand curve for every customer for a single product makes no sense.
> BTW, do you also feel it is unfair if a store charges a person less if the store realizes the person is a bit needy?
I've said nothing whatever about whether or not I agree with the Maryland law under discussion here. I'm just trying to be clear about what the law does and doesn't do.
> I could not just raise prices and "extract" more profit
You can't raise prices for all customers and expect more profit, of course.
But if you can raise prices only for those customers who are willing to pay higher prices, i.e., if you can price discriminate, then yes, you can extract more profit by doing that--as I've said multiple times now, you're transferring what would otherwise be consumer surplus to yourself. And if the cost to you of getting the extra information you need to price discriminate is less than the consumer surplus you're able to extract by doing so, then it's profitable for you to do it if you can.
Doing what I've just described is what the law under discussion here outlaws.
> BTW, the article is paywalled. I have no idea how a grocery store is going to adjust prices at checkout, as the prices are marked.
Many stores are rolling out electronic price tags on the shelves, which can be rapidly updated wirelessly [1]. They could probably do the price adjustment there. I'd assume they wouldn't want to make it too blatant, which would be a challenge.
[1] https://www.businessinsider.com/walmart-digital-price-tag-sh...
If it adjusted the prices as someone approaches, I suspect customers would soon notice it.
I'm not going to order food at a restaurant if the menu has no prices on it, even if I'm a zillionaire.
Actually, restaurants that cater to the very rich often don't have any prices on the menu, on the theory that if you have to ask what it costs, you can't afford it.
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