Quote Originally Posted by Gumby View Post
There is no reason to charge different prices for the same service. As far as I know, no other service industry does that as a standard operating procedure.

Sure there is.

By charging different prices, you can sell more and get more money (a higher average revenue per unit).

Charging different prices can also be a way to persue a social goal.

In general, this is called Price Discrimination. It happens all over.

[there are other sorts of price differential that are not price discrimination]

It happens in small markets, like farmers markets and craft fairs. This is the haggling that takes place between a small buyer and a small seller. If you're buying lettuce you might say "$1.75 each? How about I give you $3 for two?" In these markets, a price is posted. Though many buyers pay the posted price, it's understood that some buyers will not.

The end result in this market is that not all buyers pay exactly the same price.

It happens in medium sized markets, like a car dealership. This is again in the form of haggling. I'd venture to say that almost no two buyers pay exactly the same price. We bargain over the price... and also the "trade in" value, and dealer items, and fees, and financing issues like the downpayment and interest rate (and when interest starts to accrue). A skilled dealer will know how to give the illusion of a price break on an item the buyer understands, and gain it back by manipulating an item the buyer doesn't understand. A skilled buyer will not be fooled.

The end result in this market is that not all buyers pay exactly the same price.

It happens in mass-markets, like cinema tickets. Prices vary over regions (a movie ticket in Manhattan, NY is more expensive than a ticket in Manhattan, KS). Prices also vary within a region. A matinée may be cheaper. Seniors or students may get a discount. Kids younger than age X may get a discount. Discounts may only apply on some days, or at some times. Even though there is no haggling (prices are posted, and there is no negotiation), this is price discrimination. The seller charges different prices to different people. They divide the market into segments, and sets a different price in each segment.

Another example would be grocery stores and supermarkets. In many parts of the world, the posted price is the price. There is no haggling. But there are other ways besides haggling. Coupons are a price discrimination device. Club Cards are another way.

The end result in these markets is that not all buyers pay exactly the same price.

It happens in service industries too. I have an account with a financial services company. He will sometimes give me a break on a fee. If he's out of the office or busy, I get his assistant. She always gives me a break on the fee.

There was a stretch of time when I was without health insurance. My doctor charged me less. I didn't even ask. I know she would also do clinic work, where she charged a pittance.


Consider a single transaction. There are a range of prices across which the exchange might take place. The buyer may be willing to pay up-to a certain amount. The seller may not be willing to take less than a certain amount. If the exchange happens, the price will fall between these two.

In markets where sellers (perhaps only one seller) have a lot of power, the market price will be higher. In markets where sellers have great power, the price of every exchange will be very close to the top limit of each buyer.

That is: the seller will be able to charge a different price to each buyer, and get close to the maximum price each buyer would have spent.

It is widely believed that in the health care market, buyers often have little or no market power. The Single Payer idea was one way to try and balance the relative power between buyers and sellers.

Take a look at who spent money trying to defeat the idea of Single Payer. Look at how much money they spent. Consider this a bare-minimum estimate of the value of their power.

Cheers,


AetheLove