Hacker News Reader

Comment by cbsmith | Hacker News Reader

I didn't realize they had a name for it... it seems so obvious.

It doesn't sound obvious or universally true to me. For example: what if the expensive product is of only 1% better quality than the cheap product? Will people who use the expensive product not think that they are paying too much for too little gain, and switch to the cheaper product?

That's completely independent from an increase in price though, isn't it?

I wasn't clear. I suspect that under certain conditions (price, relative quality etc), and at a certain increase of price, people will switch to the cheaper product because the quality difference isn't that much.

That's not inconsistent with the effect.

The point is that even when there is a fixed price gap between higher quality and lower quality goods, the rationale to buy the higher quality gets stronger as that gap becomes smaller proportional to the price of the products.

It's not that people always buy the more expensive product.

Why shouldn't obvious things have names?

They weren't saying obvious things shouldn't have names.

They were saying they didn't realize it had a name.

Usually if it is an obvious thing, you don't have a name tied to the people who discovered it... you know, because it predates recorded history.

> it seems so obvious.

I'm not sure the effect is logically sound -- before the price hikes you weren't willing to pay a dollar more for name brand (or premium drugs etc), but after the price hike you are? I'm not sure if the authors have a mathematical model supporting the decision, or are just observing illegal drug markets and generalizing.

> before the price hikes you weren't willing to pay a dollar more for name brand (or premium drugs etc), but after the price hike you are?

Imagine that 10 normal people and Bill Gates want to buy bottles of wine. Bill goes for a bottle of $6000 Richebourg Grand Cru, and the 10 normal people always go for Shitscreek Red, sold for $4. So about 9% of the buyers are willing to pay extra for the name brand.

After the Great Wine Tax Bill of 2021, the prices are both increased by a fixed per-bottle amount of $6000. So now the Richebourg costs $12000, and the Shitscreek costs $6004. The 10 normal people migrate to beer, and Bill Gates still buys Richebourg. So about 100% of the buyers are willing to pay extra for the name brand.

That's not what the effect is about. The effect is about normal people becoming more likely to choose the expensive one because it appears to be "less 'more expensive'", because they judge ratios instead of absolute values.

A similar irrationality is when people will do an extra hour's work to save $50 off a $100 purchase, but not to save $50 off a $10000 purchase.

That's not what is being claimed. The _ratio_ of high quality to low quality products shifts in favor of higher quality as the prices of the two equalize due to fixed costs.

So let's say you'd have to pay a dollar more for a higher quality product that costs two dollars. That's twice the price, and hard for you to justify.

Now, imagine that someone puts a tariff in place so that the low quality product now costs ten dollars, and the higher quality product costs eleven dollars. Sure, you might still buy the lower cost product, but if you are going to buy the product at all, the incremental cost of spending eleven dollars instead of ten dollars seems much more worth it. As long as you have to spend ten bucks anyway, might as well spend eleven and get a higher quality good.

Reply on news.ycombinator.com