Published on 7 Apr 2015
What is tying and how is this a form of price discrimination? An example of a tied good is an HP printer and the HP ink you need for that printer. The printer (the base good) is often relatively cheap whereas the ink (the variable good) has a high markup, and eventually costs you far more than what you paid for the printer. Other examples include cell phones and data plans or the Kindle Fire and the accompanying books or music you purchase from Amazon. The base good is sold close to marginal cost, and the variable good is sold at above marginal cost. Why do companies tie their goods? Tied goods make it easy to price discriminate in a way that increases output and social welfare. Does tying increase or decrease social welfare? What is the difference between bundling and tying? We discuss these questions and others in this video.
March 24, 2016
Tying
QotD: The Cheerleader Effect
The cheerleader effect describes a human perception issue where pictures of any woman in a group are often considered more attractive than a picture of that woman alone (this may apply to men as well, but I have always heard it referred to women). Apparently women exploit this effect by posting pictures on dating sites that show them in groups of their friends rather than alone. Anyway, I have developed two corollaries:
Polo Shirt Effect: Polo shirts in a store appear more desirable when grouped with other similar shirts in an array of colors than when presented alone. This effect is strong enough to trump the paradox of choice, where offering consumers more choices can tend to flummox them and cause them to buy less. I believe arrays of multi-hued polo shirts presented together increase purchases of these shirts.
Christmas Tree Effect: We almost never buy ornaments for our tree. 95% are individually ugly, but meaningful, constructions by our kids over the years. The rest are what remain after breakage of some commercial ornaments we bought 20 years ago on deep discount in the after-Christmas sales. But a tree constructed of these ornaments is beautiful. So ornaments look far better when massed on a tree than they look individually.
Warren Meyer, “My Contributions to Social Science”, Coyote Blog, 2015-01-06.
