Talk:Price discrimination/Archives/2014

Surprisingly little on social efficiency
I was surprised how little there was in the article on social efficiency -- there's a fair amount about why it may be in a firm's interest to practice price discrimination, but very little detailed analysis how it affects overall welfare -- i.e., for example, what happens to the total net consumer surplus. Presumably overall welfare, rather than merely output, should be the goal of policymaking; so one would expect the article to have a much more thorough analysis of this.

A case sometimes made for price discrimination is e.g. that "when rights holders cannot effectively target different user groups, some users who are willing to pay more than it costs to produce a copy of e.g. a work, will not be served (and some markets will not be formed)" - from a recently leaked EU Commission options paper. . Thus, for example, the case could be made that price discrimination may allow a drug company to recoup its investment by selling at high prices in the developed world, while also making the drug available at a much lower price in parts of the developing world. Without being able to maintain price discrimination, left to follow its own interest, the company might only sell the drug at the higher price, even though there were users in developing countries who would have been prepared to pay a price that was more than the marginal production cost -- leading overall to a total welfare that is sub-optimal.

On the other hand, on the other extreme, if the firm can practice perfect price discrimination, then at every point along the demand curve consumers are entirely indifferent as to whether they buy or not, so the net welfare value overall of that product existing or not is zero -- society doesn't care.

The article also touches on some of the other issues that may arise through the maintenance of price discrimination -- eg reduced competition, artificial barriers to trading, less transparency, muddier prices, weaker economic signals, perception by consumers that they are being "gouged", or that the enabling framework has been constructed to stack the deck against them and do down their interest.

I suppose, if one's aim was to maximise consumer surplus, one would wish potential demand to be satisfied right up to the marginal cost of the item; while allowing the seller, through differential pricing, to have revenue of more than just volume x marginal cost, so as to be able to making enough revenue to their total costs (including fixed costs, and anticipated development costs), to make the production sustainable.

Of course, maximising consumer surpus is only a fairly crude first approximation for optimality -- there are dynamic and longer-term considerations to consider too, that introduce considerations for optimality that go beyond a finely-tuned static static system (eg taking into account some of the induced disbenefits introduced by price discrimination, as mentioned above). There are also questions about what issues there are with consumer surplus as a composite measure of total overall welfare -- for example, is one making particular assumptions about the marginal value of a dollar, when that marginal value (in terms of perceived additional welfare) may be rather different for somebody who has few dollars, compared to somebody who already has many.

But nevertheless, this is all surely some fairly standard textbook stuff. The bottome line is that in the article there ought to be at least some introduction to what economic frameworks can be used to analyse the overall social welfare effects. Jheald (talk) 14:49, 30 April 2014 (UTC)