Wednesday, June 03, 2009

Price Discrimination: Fish, Eyeglasses, Airfares

In an NBER working paper "
A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market" two Brandeis University economists studied fish-purchasing patterns over 22 weeks and found that white customers usually pay five cents, and sometimes up to 10 cents, more than their Asian counterparts when buying a pound of whiting at the Fulton Fish Market in New York City.

Whenever a buyer approaches a fish stand, a fish dealer’s expert eye scans “his type” and evaluates his price elasticity. As a rule of thumb, Asian customers mean tougher haggling and lower prices; their white counterparts are a quicker sell, yielding higher profits for the vendor.

A firm engaged in price discrimination faces two practical problems. The first is the problem of distinguishing customers who will buy the good at a high price from those who will not.

One solution is said to be used by optometrists. When the customer asks how much a new pair of glasses will cost, the optometrist replies, "Forty dollars." If the customer does not flinch, the doctor adds "for the lenses." If the customer still does not flinch, he adds, "each."

~David Friedman's Price Theory textbook

Round trip airfares, Detroit to Jacksonville, Northwest Airlines:

Wed. July 22 to Wed. July 29, Saturday night stayover: $229

Wed. July 22 to Thurs. July 23, overnight: $469


At 6/03/2009 9:22 AM, Blogger Milena said...

Great examples.

At 6/03/2009 9:31 AM, Anonymous Anonymous said...

The first example sounds not only like "price discrimination", but discrimination of a different kind as well. If the situation were reversed, Fulton Fish Market would probably find themselves subject to a DOJ investigation.

At 6/03/2009 9:56 AM, Blogger QT said...

One also has to look at what the customer is buying. Is it the same thing?

There is an additional cultural difference between the way Asians and caucasians buy fish aside from bargaining (agree completely that Asians are hard bargainers).

Asians do not buy freshly killed fish like caucasians; fresh to them is live fish whereas most of us are satisfied with a fish with clear eyes or pre-cut fillet. Most caucasians are also not interested in taking a number and waiting until the fish is killed/eviserated/filleted/bagged/etc.

If you have ever been to an Asian seafood restaurant, you will actually see the fish or crab brought in a pail to the table so that the guests can inspect the creature for health/liviliness.

Question: Most caucasians prefer to buy food that is far removed from its live form. Does this squeemishness to buying live lower prices on live fish preferred by Asian customers?

At 6/03/2009 10:03 AM, Anonymous gettingrational said...

I don't think this is a big deal. The public market is dynamic and the supermarket is not. The culture that frequents the market understands the buyer/seller exchange. The supermarket buyer shops with coupons and an eye for specials.

Aside: In San Francisco's Chinatown, one block west of the main street (Grant?), is a street of small Chinese food shops. On a Saturday afternoon last year my son and I visited this crowded area. We were the only white people out of many hundreds. This was a fascinating, interesting and enjoyable experience.

At 6/03/2009 10:27 AM, Blogger Hot Sam said...

This comment has been removed by the author.

At 6/03/2009 10:57 AM, Blogger QT said...

Asians comprise 4% of the population in the Bronx, NY where Fulton Market is located. The demand of 96% of the customers can also influence price.

Fulton Market is one of the oldest fish markets in the U.S.
Looks like an interesting place to visit.

At 6/06/2009 12:00 PM, Anonymous Tobin Tyler said...

Airfare discounts for Saturday night stayover have existed for some time; that's not new(s).

At 8/25/2009 12:50 PM, Anonymous Amanda said...

That's very interesting story, The Huffington Post, wrote that - white customers usually pay five cents, and sometimes up to 10 cents, more than their Asian counterparts. Is that true??


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