Subject: Re: anti/Law (an attempted explaination)...
From: "Karsten M. Self" <kmself@ix.netcom.com>
Date: Mon, 12 Apr 1999 03:23:08 +0000

Discussion redirected to egrok and FSB@crynwr.com

"Stephen J. Turnbull" wrote:
> 
> >>>>> "rn" == Russell Nelson <nelson@crynwr.com> writes:
> 
>     rn> Stephen J. Turnbull writes:
>     >> If it were possible to engage in pricing based on the value
>     >> _perceived_, I am sure Microsoft and other dominant firms would
>     >> already be doing so, greatly enhancing both their profits and
>     >> the economic efficiency of the economy.
> 
>     rn> Arguably they're already doing that, with NT Server vs NT
>     rn> Workstation.  Change the registry value, and the latter
>     rn> becomes the former minus a few programs.  Why buy NT Server,
>     rn> then?  Because of the value perceived.
> 
> You're missing my point.  The point is that a company with a perceived
> value of $10,000,000,000 for one copy of NT Server pays the same
> amount as a customer with a perceived value of $1,000 (or does it cost
> more than that?  I don't care, multiply by 10 or 100 if you need to
> :-).  If they could do really charge based on perceived value, then
> they could probably make a profit by selling to me at $19, who has a
> perceived value of $20 for Windows NT Server.  They'd recover their
> development cost by selling to the company with the $10,000,000,000
> perceived value at $9,999,999,999.

Words of a man woefully unaquainted with the SAS Institute's licensing
policies, which might be summed up as "more blood, less turnip".

Having read through the rest of your post, I find full mention of price
discrimination.  C.f. branding, generic goods, 'store brand' products,
Lexus v. Toyota, etc., etc., etc.

>     rn> For that matter, why buy a hardcover when a paperback has the
>     rn> same words?  Value perceived.
> 
> Well, yes.  In fact, some of my colleagues go to the trouble of having
> paperbacks rebound in hard covers (professional journals, of course).
> Measure that value?  Hmmm....

Depends.  Publishing houses impart a time-value on works by not
releasing paperback editions until some time after the hardcover
version.  Factor in other (in)tangibles such as the appearance of a
well-stocked library, paper grade, and content (computer manuals on
recycled pulp, ok, KJ Bible:  leather and rag paper, at least until SP4
is released).

Funny, in my case, it was an evaluation of the subscription price of a
journal vs. the storage requirements of a ten-year CD-ROM archive.  I
put down 60 clams for the CD.
 
>     rn> Or do you then argue that there really is extra measurable
>     rn> value (more programs, more durable cover) and it's not just
>     rn> perception?
> 

> This is, of course, something of a religious thing with us economists:
> "what the customer likes is valuable."  But trying to measure value in
> terms of cost just leads to contradictions, as Karl Marx showed, both
> in theory and (via the former Soviet Union) in practice.  

Mildly OT.  Arguing that something is valuable because it has a nonzero
production cost is clearly fallacious.  Arguing that a product has a
minimum market price (below which it will not be produced), set by its
production function, is clearly valid.  I suspect this had something to
do with the 'cost plus' thread on the mailing list previously not known
as egrok.  Aren't legal services a cost-plus product?


>     rn> I'd go out on a limb and say that without extra measurable
>     rn> value, consumers will react to variable pricing as if they
>     rn> were being cheated.  Given today's consumers, that probably
>     rn> means running to mama government.  Given more
>     rn> economically-savvy (sigh) consumers, that means price
>     rn> arbitrage through agents.

You're talking about the associated information markets as well:  the
information market for producers and for consumers.  Producers, due to
their greater familiarity with a good, almost always get the upper
hand.  See Borenstein (another former UCDavis Prof), on retail gasoline
price fluctuations.  Arbitrage opportunities will exist on _both_ sides
of the market.  Airline ticket pricing is probably one of the more
visible places where this occurs -- airlines have a great deal of
information on customer demand preferences via SABRE and related tools. 
Customers are beginning to get limited access to the same systems, but
there is a learning curve, and the sitution is in constant flux.


> Funny thing, I haven't noticed my university library system
> complaining about paying 10 times as much as I do for journal
> subscriptions; 

Have you actually _talked_ to a librarian about this?  You'd probably
find yourself in a whole new world.  This has been a recurrant thread on
CNI-Copyright (http://www.cni.org/Hforums/cni-copyright/).  Library
reproductions (and lost publisher revenues) are very much the issue
behind library journal pricing.

> It's even easy to find example of
> people happily paying double or triple the price for inferior products
> as long as they have snob appeal.

Evian <=> naivE

...but you have to consider externalities and secondary
characteristics.  Would you serve Bud Light at a black-tie occaision,
rather than Brut?  It's clear, bubbly, and mildly intoxicating.  Any
economist can see that they are substitutes.  The hostess with the
mostest will bore you to tears with an alternative interpretation.

Generally, though not always, an ROI calculation of some sort is
involved in purchase decisions.  The closer a purchase is tied to an
actual production activity, the more likely, in my unresearched opinion.
 

-- 
Karsten M. Self (kmself@ix.netcom.com)

    What part of "Gestalt" don't you understand?
    Welchen Teil von "Gestalt" verstehen Sie nicht?

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