Hacker News Reader

Comment by gefh | Hacker News Reader

I'm trying to decide whether this quote is a deep insight into efficient pricing or consultant-level cognitive dissonance and self-justification: “This is not a matter of stealing more money from your customer. It’s about making margin on people who don’t care, and giving away margin to people who do care,”

Leaning towards the latter.

View on HN

This sort of thing shows up in lots of different pricing mechanisms. There's no structural reason why plane or train tickets should be cheap far in advance and then go up in price a lot as the departure date nears; it's just that people who are willing to book early are going to be cost-conscious and might compare prices on multiple options while those late might care more about convenience than price (e.g., people traveling on their company's dime).

Doesn't buying plane tickets in advance let airlines plan capacity better?

They can do some capacity modulation through pricing, sure, but their historical DBs have a large enough 'n' (American Airlines SAABRE was the first big database application and drove database design) that they can predict pretty well. Which is why the bumped-due-to-overbooking is pretty low.

BTW I think it's appalling that overbooking is allowed in this age of nonrefundable tickets. You've paid for the seat; whether you sit in it is your business. In the old days of regulation most tickets were fully reusable, and overbooking harks back to that time.

For many airlines, you can re-schedule your non-refundable ticket for another day for a fraction of the cost of the original ticket. You still have to fly on that airline at some point to recoup any of the value of the ticket, but it can be done.

I can't reply to my sibling post https://news.ycombinator.com/item?id=14301909 , where this comment probably belongs, but I hoped I might be allowed to clarify that my badly worded response was not meant to be meaningless snark. What I meant to say in response to

> Doesn't buying plane tickets in advance let airlines plan capacity better?

was that whatever airlines are doing to plan their capacity doesn't seem to work very well. In support of this vague claim I adduced a news incident, very very snarkily (for which I apologise), but honestly in a spirit of discourse rather than simply of attention grabbing.

There is a structural reason:

https://en.wikipedia.org/wiki/Supply_and_demand

The people setting the prices on expiring goods are gambling on where the supply and demand curves will be, and they're probably wrong so they go up and down. Next time you reserve a hotel room, check the prices right before your cancelation window expires. There's a good chance the room prices have dropped.

Edit: Also there might be some price discrimination involved. Since each buyer values goods differently, it is most optimal for sellers to charge the most each buyer is willing to pay, and it could be true that those seeking last minute flights are business travelers willing to pay more (or those with emergencies willing to pay more). Also works with grocery store coupons and discount codes, those whose time isn't worth looking for coupons won't bother.

The quote is a good way to summarize what economists call "price discrimination" or "differential pricing." I think the practice generally results in a lower price for the people who "do care" than what they would have gotten with no price differences, because they end up getting a below average price. Although my understanding of that is sketchy.

I think it depends a little on how you define "do care". I think people are concerned that prices will rise to an extent they will care about, but that they are still willing to pay, i.e. demand is not very elastic.

E.g. if your tank is empty, you're willing to pay an exorbitant price, but you certainly won't be happy about it.

So, I think it depends a little on the actual implementation. If this really is about giving people who are very price sensitive a discount I don't think people will mind a lot, but if these algorithms learn to gouge people who are in a predicament, they won't be happy.

If you're price sensitive then you don't wait until your tank is near empty and fill up when the price may be high. You try and plan ahead a little and fill when prices are at a lower point than average.

Me? When I hit a quarter tank I go fill up. It's a fuel hungry sports sedan that runs on premium, I resigned myself to the fuel expenses before I even purchased the car. I honestly don't even look at the prices because it's just really not worth the time to worry about for me.

It's the doublespeak justification for it - "we're helping people by maximizing our profits" - that gets me.

Airplanes not being the best example, since they control the entirety of the supply chain, but if they were more like arena ticket sales, or sports-team ticket sales, then they actually would be helping people by maximizing their profits.

In the case of musicians, most of them undersupply and underprice their tickets, which means that there's a market for reselling. For a variety of reasons, they keep prices low so as to ensure a sold out venue as best they're capable, and when prices are lower than they ought to be, ensures a market for resellers. Resellers help offload the risk to the original sellers, but if the sellers were capable of maximizing profits in the first place, buyers would benefit by not having to deal with the perils associated with gray market sales. Also, the artists / venue / middlemen would make more money.

http://www.aei.org/publication/ticket-scalping-as-an-efficie...

The quote isn't solely self-congratulatory, as this pricing mechanism occurs in other industries too. For something like fuel stations, which (on the surface) appear plentiful in highly-trafficked areas, it would naively seem that there's plenty of choice for consumers to get the product at the price point they prefer.

This is much, much more true for fuel in a populated area, than it is for other products where the alternatives are in fact not equivalent, despite being priced similar (e.g. airplane tickets for the same destination are seldom equivalent, even if there are several choices; they differ meaningfully in departure times, airports, airlines, layovers).

In reality, most people are used to constant price fluctuations in the price of products such as motor fuel and airplane tickets, much more so than they are used to fluctuations in the price of staple foods at the supermarket, so most middle-income people (and up) don't go out of their way to find a different fuel station if the price is just a little bit higher, as both the cognitive effort of pondering to switch, and the physical effort of performing the switch often outweighs the savings.

For very price-sensitive people, they are (predictably) screwed by this, as they have to run around more, or come armed with more data (price apps) or expend effort on discounts (coupons, driving to the cheapest location, holding off on purchases in the hope that the price drops) to save money.

Reply on news.ycombinator.com