Price Discrimination: Charge Some People More

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·Nov 3, 2024

Are there any other microeconomic concepts outside of zero marginal cost of replication and scale economies that you think are important for people to understand?

I think price discrimination is an important thing to understand. What it means is that you can charge people different things based on their propensity to pay. Now, you're legally not allowed to charge different people different things just because you don't like them; you have to offer them a little something extra. But it has to be something that rich people care about.

Business class seats will routinely cost five or ten times what an economy class seat does, but it probably costs the airline just two, maybe three acts to provide that. It's just that the rich person is more willing to pay, so you have to give them just the little things that they need extra to either signal they're rich or that little bit of comfort that they want.

So, price discrimination gets used a lot in enterprise software, where you have a freemium product. The free version will do almost everything, but then if you want the version that's a little extra secure, or hosted on your site, or has multi-user administration purposes so the IT person can monitor everything that's going on, you're suddenly going to find yourself paying 10, 100, or infinite times as much as you go from a free product to a priced product.

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Price Discrimination: Charge Some People More

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