It’s the way that you say that you do it
When essentially the same item is sold at different prices, framing matters — a lot — to how it is perceived.
There is a classic behavioural economics finding from 1983 research by Nobel laureate Richard Thaler involving beer (I wrote about it here). Briefly, it features two parched people on a beach, and explores what they would be willing to pay for a cold beer. If the only place where it could be obtained was a posh hotel, the price participants would be prepared to pay was 75% higher than if it was a rundown shop. This suggests that differential pricing for the same beer is acceptable, depending on who the seller is. Different prices for the same beer from the same seller, at different times, that is a different affair, though. A few weeks ago, it transpired that British pub chain The Slug and Lettuce will shortly start charging 20 pence (23 eurocent, 24 dollarcent) more than their standard price for a pint of beer at peak times. Unsurprisingly, the social media chorus was not amused. I say, ‘unsurprisingly’, but isn’t it odd that we accept that the circumstances of a posh hotel justify its higher price compared to a humble store, but not that the conditions of a pub at busy times might justify higher price compared to a quieter moment?
What’s in a price?
Generally, the most important determinants for the price of a good in a free market are supply and demand. If the quantity supplied is larger than the demand, then goods will remain unsold unless the price is lowered, which then increases demand: a supplier with excess stock will seek to shift it by offering it more cheaply. If the opposite applies and the good is scarce, some buyers will offer a higher price, so it will rise until the demand falls to match the supply. This might even happen through a secondary market: the hand-built cars from UK manufacturer Morgan are scarce because demand outstrips the limited supply, so buyers can buy a brand new Morgan Plus 4 at £43,389, which is not available, and, for example, a three-year-old model with nearly 3000 miles on the clock offered at £49,991, which is available immediately.