This is the Quality Contributions Roundup. It showcases interesting and well-written comments and posts from the period covered. If you want to get an idea of what this community is about or how we want you to participate, look no further (except the rules maybe--those might be important too).
As a reminder, you can nominate Quality Contributions by hitting the report button and selecting the "Actually A Quality Contribution!" option. Additionally, links to all of the roundups can be found in the wiki of /r/theThread which can be found here. For a list of other great community content, see here.
These are mostly chronologically ordered, but I have in some cases tried to cluster comments by topic so if there is something you are looking for (or trying to avoid), this might be helpful. Here we go:
Quality Contributions to the Main Motte
Contributions for the week of April 3, 2023
Recognition Diplomacy
Contributions for the week of April 10, 2023
Transitive Reasoning
Contributions for the week of April 17, 2023
Identity Politics
Contributions for the week of April 24, 2023
- "What is going in Sudan is a practical demonstration that being a global power does not mean that everything going on in the world is secretly about you."
Jump in the discussion.
No email address required.
Notes -
Holy crap. That @ControlsFreak post on personalized pricing just blew my mind. I hadn't seen it when it was first posted, but I'm very glad that I did because it just changed my perspective on the whole financial assistance thing.
Thanks for such positive feedback! It's really nice to hear that it resonated with people; when I first wrote it, I got no responses, so I actually figured that it had just fallen flat with the audience.
If you look, it got more upvotes than the post it was responding to, so most likely people who saw with it agreed but didn't have anything of their own to add in response.
I don't know about everyone else, but I don't dig into the responses on every top level post, only ones I find interesting. And often miss responses if they happen after I've already read the top level post, as I usually don't go back and find new responses. So that's why I missed this one, because I do read every top level post, but I didn't care about this one.
I also more frequently respond to people I disagree with than people I agree with, because people I agree with already said half of my thoughts. So that's a bias towards non-response which was probably relevant here given how insightful your post was.
So I guess as a followup here:
Is there a solution? I think we'd both agree that this scenario is generally bad for society if businesses capture all of the gains, because that screws over the customers. Economic surplus is created by the economic trade between producers and customers, and thus both are partially responsible for it, so both deserve some of the surplus. Not necessarily exactly 50-50, but some reasonable fraction. So if producers capture 99% of surplus by near-perfect price discrimination and leave just a tiny scrap of surplus to customers to push them over the edge of indifference, then customers are being deprived of surplus that is rightfully theirs.
On the other hand, price discrimination is often more economically efficient than a flat rate.
Suppose we have 10 consumers who value a good with utility 1,2,3...10. And a producer who can produce the good with cost 2.
1: With a flat price for all customers, the producer maximizes profits by setting their price at 7 - ε, in which case they sell to 4 consumers. The total surplus is 26, of which 20 - 4ε is captured by the producer and 6+4ε is captured by consumers.
2: With perfect knowledge and price discrimination, the producer sells to each person with value greater than 2, at a cost ε less than their valuation. They sell to 8 consumers, the total surplus is 36, 36-8ε is captured by the producer, and 8ε is captured by consumers.
So even though the consumers are better off in the flat price scenario, the total economic surplus created with price discrimination is higher. If we could somehow detect these scenarios and redistribute the surplus back to the consumers in a way that didn't distort the economic incentives of the producers or consumers, the price discrimination scenario is better. I will note that there's also a third scenario with comparable surplus:
3: If the producer is altruistic/non-profit, they can set a flat price equal to 2+ε, they sell to 8 people, the total surplus is 36, but now 36-8ε is captured by consumers and 8ε is captured by the producer.
So if the balance of power tips too far in either direction, one of the groups will snatch all of the surplus. I think a fair equilibrium would maximize surplus while splitting the distribution somewhere in the middle. Not necessarily 50-50, but somewhere in the ballpark. But how do you do that here? Taxes and explicit forms of redistribution usually distort incentives, but maybe there's something clever I'm not aware of?
I think the easy answer here is not to set up a monopoly/cartel in the first place.
However, once you have set up a weak cartel, then give the individual components of the cartel reason to defect from the cartel. Cartels want to restrict output, exactly in line with your example (1). But they can struggle to enforce the restriction internally, since individual members have an incentive to reduce the price. One member could charge 6 and make more individual profits. The hope is that defections build on defections, and the result is the competitive equilibrium of everyone charging 2. (In most cases, the supply curve will be upward sloping instead of constant, so they will still capture some surplus.)
However, if we hand each member the ability to perfectly price discriminate, there is much less incentive to defect. Each member of the cartel simply presents each potential buyer with the price that is their individual willingness-to-pay. At best, you have little mini-competitions where each member considers, say, the buyer who values the good at 5, and presents them with a price of 5-ε. The members of the cartel might haggle a bit over who chooses the biggest epsilon for each individual, but none have much of an incentive to deviate much. Instead, I think we would predict exactly what we see universities do in practice - "competing" primarily on non-price factors. Prestige. Name brand. Exclusivity. That helps them maximize their chances to get those 10 and 9 buyers, selling to them at 9.9 and 8.9. The lower tier universities might offer them prices of 9.8 and 8.8, respectively, since they also know their willingness-to-pay, but they're offering a product that is actually valued lower. If each university offers individual prices that are pretty darn close to the individual willingness-to-pay, adjusted slightly for perceived quality, then consumers are going to make slightly different estimates of value, different members of the cartel will "win" a different set of the customers, and so each buyer will get some surplus, but not much. Mostly noise. It's just an entirely different ballgame when every member of the cartel has quite good information concerning each individual's willingness-to-pay.
But in general, your point is a good one. IIRC, many economists judge the value of price discrimination based on whether it actually increases total output. This is the reasoning behind statements like that of @FlyingLionWithABook:
Would universities actually reduce output if they couldn't price discriminate so perfectly? I'm not sure. Their marginal costs are pretty low.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link