Hacker News Reader

Comment by mr_toad | Hacker News Reader

> In reality, without market segmentation a singular price for everyone would fall much closer to the enterprise price than the non-enterprise price.

That totally depends on the relative elasticity of supply and demand.

It’s not very intuitive, but price discrimination (usually) results in too much demand for a good/service and a deadweight loss of consumer surplus. In the worst case scenario all consumer surplus can be arrogated to the producer, and an extreme oversupply of the product. Imagine a cheap drug that could be sold for whatever amount of money the consumer had available.

View on HN

Price discrimination allows producers to capture consumer surplus from consumers with a greater WTP than the otherwise price, and to offer the product at a lower price to those with a lower WTP.

In a monopoly, this means that the quantity supplied may be greater, but it would still be no greater than under perfect competition (necessarily so since the monopolist would never offer the product at a lower price than their MC, which is where price would be under PC). You can see this because there is no consumer that would buy under price discrimination that wouldn't buy under PC, and everyone with a WTP greater than MC buys either way.

Anyway, I agree that price discrimination results in the producer capturing more consumer surplus, but it can potentially be beneficial for those with a lower WTP in return for hurting those with a higher WTP.

There are many arguments I've heard about price discrimination being annoying, but deadweight loss is not one of them. Quite the opposite, fixed prices in the presence of undeserved pricing power results in a less than socially optimal amount of production, and price discrimination tends to reduce that.

To say nothing of the implicit argument that software service providers have undeserved pricing power; I think that's begging the question, but it's not really relevant to my quibble here.

Reply on news.ycombinator.com