Tyler Cowen discusses Priceline’s role in the marketplace and price discrimination in particular although he errs slightly in saying that Priceline
- serves price discrimination, including in the gasoline market.
This old Slate piece explains how Priceline enables price discrimination:
- It finds out how much each customer is willing to pay by the brilliant technique of asking. And it keeps the higher-paying customers away from the bargains by making the process such a pain in the ass. With Priceline, you have to give your credit-card information and agree to be charged before you know whether you’ve even got a deal. You don’t get to choose the airline that you’ll fly. You don’t get to specify the time of day you’ll leave or whether you’ll make an intermediate stop. These hassles are not an unfortunate byproduct. The burdensome process is essential to making price discrimination work.
In a traditional market where everybody pays the same price, almost every buyer actually would have been willing to pay more, and almost every seller would have been willing to take less. Charging different prices to different people is a way for sellers to occupy more of this no man’s land. Outlet malls and traditional discount ticket brokers are other methods of price discrimination. But Priceline’s name-your-price allows price discrimination to be far more fine-tuned. An outlet mall separates those who’ll pay $150 for a dress from those who’ll drive 30 miles to get it for $119.96. The seller is still losing $4 from the outlet customer who would have paid $123.96, and losing entirely the customer who would have paid $118.96. Priceline has a different price tailor-made for each customer. (In the premi