Comment by pdonis
3 hours ago
> 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.