Source: David Friedman’s Substack
by David Friedman
“A firm engaged in this sort of discriminatory pricing faces two practical problems. The first is the problem of distinguishing customers who will buy the good at a high price from those who will not. In the examples I have given that is done indirectly by characteristics of the buyer or the product. The second problem is preventing resale. It does no good to offer your product at a low price to poor customers if they then turn around and resell it to rich ones, thus depriving you of high price sales. This is why discriminatory pricing is so often observed with regard to goods that are consumed on the premises, transportation, movies, speeches, and the like. If GM sells cars at a high price to rich customers and at a low price to poor ones, Rockefeller can send his chauffeur to buy a car for him.” (10/06/25)