The Price of Everything - Eduardo Porter [16]
These patterns arise because of differences in the way people value time and money. Time is relatively more valuable to the rich, who already have money, than for the poor who don’t. A janitor in New York making $11 an hour will likely prefer an extra $20 than an extra hour of leisure. A lawyer who makes $500 an hour, by contrast, would probably choose the free time. This affects how each of them will shop. The lawyer will be less inclined to spend hours comparison shopping and instead will pay the first price she sees. The janitor, by contrast, will be more willing to spend a little time to clip coupons, shop around, and get a better deal.
The value of our time also rises with age. That’s because wages increase as we proceed on our careers, gain expertise, and acquire seniority. The number of hours in the day, by contrast, does not. As any parent will admit, time actually contracts when one has children competing for attention with household chores, shopping expeditions, and a job. Time is at its most scarce and expensive around age forty-five, when wages and job responsibilities peak while families still have children living at home.
Companies exploit these differences. They charge more for basic staples in supermarkets in rich neighborhoods than in those frequented by lower-income shoppers. Rebates and coupons allow them to sell the same good at two prices—one for poorer coupon clippers and another for the rich who couldn’t care less. The technique can be used to discriminate between all sorts of people with different costs of time.
PEOPLE DIFFER ALONG dimensions beyond age and wealth. Companies try to target these differences to sell their product to as many customers as possible, extracting from them the maximum price they are willing to pay. Examining the 2008 Zagat restaurant guide for New York City, two economists discovered that restaurants rated as romantic or with a good singles scene charged up to 6.9 percent more for appetizers and up to 14.5 percent more for desserts, relative to the cost of the main course, than did restaurants classified as good places to have business lunches. The reason, they surmised, could well be that couples—if they liked each other—would linger and order an appetizer, perhaps a dessert. It would be unromantic for either to make a fuss about the price. So a restaurant could charge them relatively more for these “romantic” items on the menu.
The technique—called, appropriately, “price discrimination”— is ubiquitous. What else is the student discount at the bookstore, or the cheap matinee ticket on Broadway? Books are published in pricey hardcover months before their paperback edition to capitalize on those who can’t wait to read it and will pay more to get it faster. Apple launched an eight-gigabyte iPhone at $599 in June of 2007, to capture the early adopters who would pay anything to be among the first to have one. Two months later it dropped its price to $399.
Airlines are masters at selling seats on a plane at vastly different prices. They honed their techniques over more than thirty years trying to fill flights that cost the same to operate whether they are empty or full. In 1977, American Airlines was the first carrier in the United States to try the gambit, offering cheaper “Super Saver” tickets that required advance purchase and a minimum stay of seven days or more to lure price-conscious leisure travelers. Price variation exploded after airfares were deregulated in 1978, setting off intense competition as airlines strove to fill as many seats on their planes as they could. For a quarter century their most famous technique was the Saturday-night stay rule, used to segregate price-conscious