Thursday, November 30, 2017

econlife - Why There Is No Such Thing as a Free Coupon by Elaine Schwartz

Last week, I paid $25 for three hours at an NYC parking garage. Others though paid $50 for the same amount of time.

We could say that it cost me less.

But there is much more to the story.

What the Coupon Cost Me

To get my $25 discount, I had to…
  1. Download the Icon Parking app. (Icon is a parking garage owner in NYC.)
  2. Find the link to the garage I had selected among their hundreds of locations.
  3. Open the link and enter my email.
Then I received an email that said this. (I added the arrow.):


You can see that I had to remember to download the email at least 30 minutes before getting my car.  It would have been much easier to download when I paid. But Icon did not want to make it easy.

Our Bottom Line: Price Discrimination

An economist would say that Icon Parking was engaging in price discrimination. They were targeting a lower price to a specific segment of their market. That market segment would be willing to trade time and hassle for money. That market segment also was more price sensitive or we could say, elastic. By elastic, an economist means that the quantity demanded goes up or down by a greater proportion than the change in price.

A firm’s price discrimination typically is based on a customer’s willingness to pay. The goal is to maximize the revenue from the group that can pay more and also from those that cannot. Movie theaters have senior citizen discounts because the elderly tend to have less discretionary income while everyone else can theoretically pay full price. Educational institutions have financial aid based on need. Airlines have discovered how to identify the observable traits of a business traveler and then charge more for those characteristics.

And it need not even be entire groups. Once websites know more about online shoppers, they can individualize pricing as well as the entire shopping experience. They can treat the valued customer, the repeat customer, the new customer and the price conscious customer differently.

Returning to Icon, you can see what they had in mind. They created a time sacrifice that would cater to the consumer that was price sensitive. The result was getting my $25 as well as $50 from many other patrons.

My sources and more: Price discrimination is usually related to monopoly power. If you would like to read more on the topic, I recommend the always insightful Conversable Economist.

I did want to note that today’s featured image was from the Icon Parking website.

Hazlegrove-6763_6bIdeal for the classroom, reflects Elaine Schwartz's work as a teacher and a writer. As a teacher at the Kent Place School in Summit, NJ, she’s been an Endowed Chair in Economics and chaired the history department. She’s developed curricula, was a featured teacher in the Annenberg/CPB video project “The Economics Classroom,” and has written several books including Econ 101 ½ (Avon Books/Harper Collins). You can get econlife on a daily basis! Head to econlife.