> No, I'm not. For one thing, I picked £7 out of thin air. Change it to £6 and this (erroneous anyhow) statement falls apart.
So to make your point you have to make the distribution of customers even more unrealistically clustered, when in reality it will almost always be a smooth curve. And the need for this restriction also proves that price discrimination is not always good for "everyone," since in the original case it clearly isn't good for consumers.
But you're also ignoring the point about competition. If the goal is to maximize overall (combined consumer and producer) surplus then price discrimination at best works only as well as competition would if it existed. In a competitive environment a theater can't charge $6 to people who would pay $6 and $10 to people who would pay $10 because the theater across the street is charging $5 to everyone. And that creates more overall surplus because there will still be some students who would pay $5 but not $6 and some adults who would pay at least $5 but not $10.
If you're still not getting it we can go for the reducto ad absurdum. Suppose that food sellers collectively come up with a way to engage in perfect price discrimination and all begin charging that amount. Since without food people die, that amount will always be every last dime the buyer has. I can go into how and why that would be bad if you really want me to but I think it should be pretty obvious.
> Moreover your analysis is wrong - not everyone is as happy as they could be, you're only thinking from the consumer's perspective.
My entire point is that it isn't possible for everyone to be as happy as they could be in a purely distributive scenario. If there is $3 of surplus on the table then whoever doesn't get all of it is going to be less happy than if they did. And all price discrimination does is make sellers happier at the expense of consumers. It has no effect or, if done less than 100% perfectly accurately, a negative effect on overall happiness.
> It is not discrimination in the political sense, but the dictionary sense: to differentiate.
I don't think anybody is confusing it with e.g. racial discrimination. Although I suppose it could create a statistically significant difference in the prices charged to different races, which doesn't exactly help your cause.
> Price discrimination in theory should not drive customers anywhere but rather make them indifferent to their choice of supplier.
If one supplier is engaged in price discrimination then any other will have the opportunity to take their business by charging a lower but still profitable price to the customers being charged the higher price.
> If the goal is to maximize overall (combined consumer and producer) surplus
The goal is to maximise wealth in the whole economy in such a way that gains incurred by one agent cannot come from harm incurred by another (Pareto optimality).
> My entire point is that it isn't possible for everyone to be as happy as they could be in a purely distributive scenario. If there is $3 of surplus on the table then whoever doesn't get all of it is going to be less happy than if they did.
It's not about surplus!
Take a good X and denote it's cost C(X). Assume we're using pennies (i.e only dealing with real, positive integers) and that the market is large and normally distributed. For ANY flat price, P(X) = c (a constant), such that P(x) > C(X)+1 there must exist a class of consumer whose true monetary valuations are in the set V = { v | C(X) < v < P(x) }. They will never be catered for and are always worse off than they could be. Consumers with v > P(x) are gaining v - P(X) at the expense of: the producer, who is incurring an opportunity cost of v - P(X); and members of V, who are each losing Utility(X) - v. We therefore have utility deltas vs. price discrimination of (assuming no indifference for simplicity):
For this to have been fair (Pareto) to everyone, these deltas must be u1 = u2 = u3 = 0. As it stands, the inefficient pricing structure delivers | u1 | < | u2 + u3 | i.e. wealth lost by two is greater than wealth gained by one - wealth is destroyed. Violation of Pareto is obvious here, but showing the wealth destruction rigorously is a little more work than I'm willing to do in ASCII, but it's there.
Solutions? Well the producer could set a flat price P(X) = C(X), essentially giving all their surplus to the consumers. This removes profit from the equation, which under imperfect competition removes the incentive for the producer to go on doing anything at all, and nullifies the analysis (as well as being completely unrealistic.) The only way to make sure everyone is as happy as they can be without harming anyone else (i.e. members of V) is to make P(X) = vn for any given consumer n.
You may not like the idea of producers taking all the potential consumer surplus, but in the absence of perfect competition, this surplus can only ever be consumer surplus at the detriment of other consumers (members of V) and the producer.
> But you're also ignoring the point about competition.
Perfect competition and perfect price discrimination are equivalent under the usual perfect assumptions, you're quite right. But when we recognise that neither is actually possible this becomes less relevant.
Perfect competition always results in P(X) = C(X) and this whole discussion is moot. Imperfect competition (in the absence of government subsidies, etc) results in P(X) > C(X). Again, members of V are missing out and the case for price discrimination is created. The strength of the case for price discrimination is a function of the sum of the members of V, which in turn is a function of [P(X) - C(X)] assuming consumer valuations are distributed somewhat normally. Therefore, one could argue that the "less perfect" the competitive environment is, the stronger the case for price discrimination (I need not point out that the current state of the world is far from economically perfect). In fact - under the assumption that perfect competition and perfect price discrimination are not possible - I suspect it could be shown that an economy implementing some "good-enough" version of both is optimal.
So to make your point you have to make the distribution of customers even more unrealistically clustered, when in reality it will almost always be a smooth curve. And the need for this restriction also proves that price discrimination is not always good for "everyone," since in the original case it clearly isn't good for consumers.
But you're also ignoring the point about competition. If the goal is to maximize overall (combined consumer and producer) surplus then price discrimination at best works only as well as competition would if it existed. In a competitive environment a theater can't charge $6 to people who would pay $6 and $10 to people who would pay $10 because the theater across the street is charging $5 to everyone. And that creates more overall surplus because there will still be some students who would pay $5 but not $6 and some adults who would pay at least $5 but not $10.
If you're still not getting it we can go for the reducto ad absurdum. Suppose that food sellers collectively come up with a way to engage in perfect price discrimination and all begin charging that amount. Since without food people die, that amount will always be every last dime the buyer has. I can go into how and why that would be bad if you really want me to but I think it should be pretty obvious.
> Moreover your analysis is wrong - not everyone is as happy as they could be, you're only thinking from the consumer's perspective.
My entire point is that it isn't possible for everyone to be as happy as they could be in a purely distributive scenario. If there is $3 of surplus on the table then whoever doesn't get all of it is going to be less happy than if they did. And all price discrimination does is make sellers happier at the expense of consumers. It has no effect or, if done less than 100% perfectly accurately, a negative effect on overall happiness.
> It is not discrimination in the political sense, but the dictionary sense: to differentiate.
I don't think anybody is confusing it with e.g. racial discrimination. Although I suppose it could create a statistically significant difference in the prices charged to different races, which doesn't exactly help your cause.
> Price discrimination in theory should not drive customers anywhere but rather make them indifferent to their choice of supplier.
If one supplier is engaged in price discrimination then any other will have the opportunity to take their business by charging a lower but still profitable price to the customers being charged the higher price.