> if consumers are willing to pay 1.5x, you are leaving money on the table by charging x

That’s the same argument for charging thousands of dollars for insulin. It’s also the same argument landlords are using to charge more to victims of the LA fires.

It's essentially predatory behaviour, exploiting those in need. I think anyone arguing in favour of 'pure' market outcomes is essentially arguing in favour of unethical behaviour.

Either all selling is predatory or none of it is.

I’m in the former camp- it’s predatory and our prosperity is built on it.

"Either all or none" is a very questionable heuristic for anything.

It is possible that price gouging after a natural disaster is predatory, while action pricing for one-of-a-kind memorabilia is not.

Supply demand dynamics only work for optional spending and in market segments that have real competition.

Another way to look at it is charging what the market demand dictates. If you charge your normal rate, rooms will sell out and only the lucky ones who booked early will get a room. If you set a rate that leaves 5 or 10% of rooms vacant, someone who needs a room can get one (though it will be expensive).

I've seen this advocated many times here for how cities should set parking rates. It never seems to be called predatory in that scenario.

Time pressure and space requirements are a concern with parking, and also the government built the infrastructure (roads, sidewalks, etc.).

It’s not really a good comparison and doesn’t seem predatory at all.

But also if you consider it predatory then you wouldn’t want to advocate or defend the expansion of the practice into other areas.

I don't; I consider it the market working.

During COVID, I'd have preferred to be able to buy a roll of toilet paper for $5 than to have the price unchanged but the stores totally sold out for weeks.

I think as a society we have largely decided that in cases of acute shortage we don't want to raise prices and cause further problems. If toilet paper is $5/roll maybe instead of paying surge pricing for it, people just start stealing it off of trucks. What actually occurred was people hoarding toilet paper for no reason, since there wasn't actually a shortage. It was a manufactured "shortage". Maybe had we enforced some sort of reasonable buying scheme we wouldn't have had any problems at all. You can see this in the bourbon market to some extent, actually.

In Ohio rare bottles are sold at retail pricing and you join a lottery to be able to purchase one. Secondary prices are $1,000 for a $100 bottle. We could just let people who are willing to wait to be first in line buy bottles and then sell them at higher prices - that's market efficiency, but we've decided that kind of sucks and instead we've decided to enact a lottery instead and open the bottles so you can't resell them as easily. Most people are pretty happy with the results. It's not efficient but that's ok.

I think parking falls under a similar purview, except that the government is heavily involved in parking schemes. As an example, the promotion of the usage of gas-powered vehicles and the automobile industry, which require us to go to war and things to secure supplies. There's very little that is efficient about that market and the usage of the vehicles is extremely subsidies, you're only noticing the immediate cost when you go and have to pay pricing for peak/off-peak hours. Other goods and services are more efficient and/or less necessary, so there's different pricing schemes that we like as a society.

The main problem with economics as a field is that it assumes "good" and/or rational behavior. But markets and the economy are just one aspect of society. We intentionally make trade-offs all the time because we like the results, even if they aren't efficient.

Is the pure market outcome not that someone creates a competing insulin company? Patents and the buying practices of Medicare (both government interventions in the market) would seem to be the two biggest blockers.

Yes. The pure market solution to "overcharging" people seeking housing is that people with available housing (near Palisades) go stay in Nebraska for six months, and sublet their existing available residence for $10k/mo.

But politicians in California have forbidden the market from functioning in such a way -- so those with housing (possibly) available chose not to offer it because the price isn't worth it.

Exactly - and it sounds harsh at first but consider that a family of four put up in a hotel for a month is going to cost a figure close to that and the insurance company is paying for it.

Plus the timescales involved go beyond “emergency” to actually effecting the market. LA is down 5000+ properties for the next 3+ years - a genuine reduction in supply that will drive prices upwards.

Price caps don’t limit demand and instead cause supply shortages, which we should expect to see in LA.

I don't believe it is unethical at all. If you have one of something, who do you sell it to? The highest bidder? The first bidder? The person you like the most? Why is one more or less ethical than another?

I think you are underestimating the depth of information such an automated system would have. This is Uber surge pricing but for everything.

What I am concerned about are the emergent effects of this. Invariably, everything will be more expensive. Whether a single transaction is unethical is kind of missing the point.

It isn't always exploiting dire needs. It can be a redistributive mechanism like progressive taxes, especially when combined with taxes on the profits.

I don’t agree with it, but yes you’re right. The economy is running a giant, heartless optimization algorithm.

> It’s also the same argument landlords are using to charge more to victims of the LA fires.

Not entirely the same. LA is currently missing homes and experiencing a surge. Of course the proper solution is to (re)build houses.

I dont like the idea that person A and person B will be given 2 different prices for the same commodity. It is discrimination.

The prices might seem fair to each, until they learn what the other was charged. At that point the sellers likely pays a price in terms of reputation.

In theory this discrimination will be discovered (as in, see article) and if people don't like it they will select for companies that do not have (or have less) such discrimination.

If all businesses discriminate then there is an opportunity to compete using no discrimination as an edge.

Just as, for example, if a business decided (if it was legal) to only allow people of a certain race to enter, I would like to think that most members of that race would be disgusted enough to boycott that business and the business will rightly fail.

Finally, people already effectively pay different amounts for all sorts of things due to varying amounts of tax paid.

The private sector can't detect or profit from your tax paid so they use where you live and other signals like whether you're using an iPhone etc. as a proxy for your income/wealth.

>Just as, for example, if a business decided (if it was legal) to only allow people of a certain race to enter, I would like to think that most members of that race would be disgusted enough to boycott that business and the business will rightly fail.

We literally have federal laws outlawing this because it was, in fact, a selling point to exclude other races. Are you unaware of the history, or just hoping that racism has successfully been ended in the United States?

1964 was 60 years ago.

So you think if the law was removed from the books people would simply choose not to have racist public establishments in 2025?

Most businesses struggle to stay afloat without adding racial discrimination.

I suspect almost all such businesses would die quickly.

So yes, there would be such public disgust and stigma that even those patrons who valued such a business would hopefully hesitate to expose their bigotry.

People really take Adam Smith way too seriously. He lived at a time when the economy was made up of independent artisans not people working for large multinational corporations. If markets were really so good at regulating themselves why were any government standards necessary at all?

The reality is, every product has an asymmetry of information, and the more complex it is, the higher the asymmetry. And you can’t determine the quality of a product until you buy it. And determining quality takes time, which is a limited resource.

> the business will rightly fail

In reality, what stops bad behavior is regulation because in reality, people do not have infinite time and infinite information to assess each thing they consume.

> In reality, what stops bad behavior is regulation because in reality, people do not have infinite time and infinite information to assess each thing they consume.

Reputation is much easier to destroy and bad behavior is much harder to hide today than 50 years ago due to the easier spread of information.

There is still a huge spectrum of business behaviour that is not violating regulations. In the aggregate businesses who please their consumers more will thrive compared to those that don't.

Adam Smith is often used as symbol of laissez-faire capitalism but was explicitly a proponent for regulation in situations where the market failed, such as this one imagine.

What you probably mean is that people take the concept of the invisible hand too seriously. Which was a relatively minor point in the book, and has somehow been magnified to the point of absurdity by the economic and political trends of the last 40 years.

Adam smith is way more reasonable than you’d think, given how he’s portrayed in the modern era.

In theory, that is true. In reality, there's a thousand reasons why it's not in the world of digital (and many non-digital) services in 2025.

It is more egalitarian to sell the same commodity to a poorer person for less money, and a richer person for more money. This can be generalized to “selling to a person able and willing to pay more for a higher price and a person less able and less willing for a lower price” (as long as it is not lower than the COGS).

Price discrimination does not mean anyone is getting hosed. A simple example is someone that wants to go through the trouble of using coupons at grocery stores. A person with less time and more money might choose convenience, or a brand name product. A person with less money can still buy using a coupon, or buy generic.

Obviously, that doesn’t mean a richer person is obliged to pay more. But it’s not evil to attempt to maximize the take based on differing buying power / desire.

As the article shows however the discrimination is always also against less tech-savvy (or less educated) people, who often are also not rich, for example older people. My parents would almost always pay more for online shopping products than me because they don't know the best way to search for prices, or can't tell which shops are trustworthy.

Less savvy people are always going to get worse deals. My mom does not read English, so she did not take advantage of coupons on newspapers, even though we were poor.

The game has obviously changed quite a bit, but I specified “able and willing to pay more” for this reason.

Two factors coincide for a buyer to make a decision to purchase something, ability and willingness. The seller does not benefit if they drive away people who are not able to pay more with too high prices, and if they give discounts to people who are able and willing to pay more, but savvy enough to figure out how to get the discount.

So a seller will enact hurdles for the savvy to see who is willing to do more work to get a discount, or they can sell under different labels to sell to both people paying lower prices and higher prices, under the guise that it is a different product.

Most common though is to slightly tweak a product so that you are not selling the same exact thing at different prices, so the person paying more feels like they got more for more money.

> In fact in a fully optimized system, once consumers have all of their wants and needs met, they will have zero dollars left over.

What are your parameters for optimization here? If the point is to maximize extracted revenue then this is a reasonable outcome but we could optimize for any number of targets. We could optimize to make the best use of resources, we could optimize for best consumer reviews, we could optimize for the ideal buyer/seller price that makes both entities in the transaction walk away with the best deal for each of them.

But there's this persistent notion in the current business zeitgeist that the only metric worth optimizing is profit maximization and it's one that we should reject. Companies need to make a profit and workers need to take home a salary and that's fine, but we get to build the world that we live in. Living in a world where we care about quality of life and equity in transactions is much more interesting to me than living in one where all we care about is the velocity of extraction from anything that isn't nailed down.

I agree with you 100% on the “should”. Companies should behave well. However, they are still profit maximizing machines, so one way to get what we want is to change the system of rewards and punishments such that profits are maximized while we still maintain a livable planet.

What I’m suggesting is to punish bad behavior and reward good behavior.

Every time a company is hacked, they pay into an annual pool. Every company which isn’t hacked receives money from that pool.

CO2 emissions are taxed, which goes into a pool. This pool is used to pay companies that scrub emissions.

I’m wondering if these incentives can work to increase life expectancy, decrease child mortality, eradicate diseases, etc.

Without better incentives there is no reason not to burn down the planet for a dollar. Of course it is not a panacea, it still requires some social trust.

Also, it needs to be framed properly. I propose to name it: value based pricing.

How much value does this room provide you? If you can pay 2x, then it implies value you get is also 2x.

Third degree price discrimination is not as catchy. https://www.investopedia.com/ask/answers/042415/what-are-dif...

I would guess that most dynamic pricing won't work in a competitive market. By "competitive" I mean that there are a large number of buyers and sellers and something close to perfect information (namely that buyers know the prices goods are being sold at).

Likely true, but the point made in the article (near the ned) is that consumers generally don't have that information and vendors go to considerable lengths to obscure it.

>If consumers are willing to pay 1.5x, you are leaving money on the table by only charging x.

What about other businesses that are willing to charge x-1?

That assumes a perfect market. No information asymmetry between buyers and seller. No collusion. All buyers and sellers on equal ground.

What? Really? Please read my comment, you will see that I have not assumed a perfect market.

If I sell bagels for $2 each, and then I go down the street and see another bagel shop selling for $1.90 each, I might try to offer mine for $1.80 (if I have margin to spare).

It’s really that simple and something that demonstrably happens in the real world every day.

In reality people don’t have infinite time to find the bagel which optimizes value per dollar, they just want a bagel and coffee. Most people wouldn’t walk 2 blocks to save 20 cents even if they knew a bagel of absolutely equal quality could be found there. And bagel shops aren’t that common. The next one might be a 15 minute drive. That’s basically one cent per minute.

To bring it back to dynamic pricing, you wouldn’t know what either shop will charge you until you’re there. In fact they could charge the same person different prices at different times.

In reality, pretty much every study of business ever shows that consumers are price sensitive. And you sound like someone who has never ran a cafe.

But by all means, maybe you cracked the code. You should open your store and make a lot of money from these customers who aren't sensitive to price. Don't waste your time theory crafting about it on the internet!

Wait but then if they make a lot of money all of their suppliers will have to dynamically raise their prices! Once the coffee beans and cups arrive you’ll find out how much they cost.

Indeed. Price discrimination is a market failure. It's only possible when a seller has market power.

This is a rather capitalistic and self-centered way to think about pricing. Under our current paradigms, a "fully optimized system" would behave in the way you described, but I would argue that it is optimizing for the wrong things (same as the larger system). To me, a "fully optimized system" would be one that is capable of providing products & services at an equal price to all people. It wouldn't care about who can afford to pay more because it doesn't require the additional profit. Instead, it is efficient at a predictable and stable price point.

Those who politically advocate for "equality of opportunity" should favor a future where this is how things work, not one where everyone ends up with $0 spending money. In fact, the latter is exactly the opposite – equality of outcome.

There's an argument that it is unwise to fleece your customer so hard they don't come back again.

If that were a winning argument there would be a lot less fleecing happening. In reality there may be only one ISP, one airline with flights to where you need to go, two major smartphone OSes, three wireless carriers, one grocery store nearby, etc.

Vendor lockin is also a thing. Even if AWS is more expensive, the cost to move elsewhere can be prohibitively high.

It’s a winning argument still. Don’t mistake it with lack of competition in a market. Even ISPs have a limit on fleecing customers before people get really fed up with it and nationalize their business or provide funds for competitors.

We tend to look at these things through a static lens “two major smartphone OSs” and not over longer periods of time, which is a problem in framing discussion. When Ford built their car there was approximately just one car (one OS). If you paused time there you’d apply the argument you’re making to Ford. But over the longer arc of time you’d have been incorrect.

You can just buy or kill your competition via subsidizing your pricing. There's no appetite to legislate this anticompetitive behavior.

Since human wants are unlimited, isn’t it by definition that they will have zero dollars left over if they actually tried to satisfy as much as they feasibly could?

Not really - I want security which is why I always keep a reasonable amount of emergency savings. Not to mention my retirement funds that provide security for the future when I can't work. Ideally I'll die just as I spend my last dollar, but it is highly likely that I will have money left over.

I have a child that is severely disabled, and will probably never be able to support herself.

SSI is a joke, and the incoming Cruelty Administration is likely to make it worse.

I’d like to think that I can leave something to her, so she won’t wind up spending the remainder of her life on the streets. I’ve seen that happen, frequently.

This bug can be mitigated via inflation.

That makes it worse as I have to budget enough money for the worst [best?] case life.

Aren’t you forgoing some other wants? Such that it’s not been satisified to the maximum feasible extent.

A complete list would be long and get into private things I don't talk about

Taken to the extreme conclusion, governments can potentially charge different tax rates to different individuals based on their inability to sue or inability to fight back. They may completely forego the notion of income based tax brackets . /s

I'll disagree with your assessment about having zero dollars left over. Not everyone will want to spend everything they have But also a lot of people are willing to pay 1.5x for something until they find that others aren't. Yes there are somethings I don't mind paying now for, so someone else can pay less. But there are other things that I'll refuse to pay more for if someone is paying less.

or get this…companies can respect their customers! Maybe that would even increase company brand and reputation.

The companies that do this will win long term in my opinion. People aren’t stupid.

Capitalism has finally come full circle :)

https://en.wikipedia.org/wiki/From_each_according_to_his_abi...