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DYNAMIC_PRICING_SLIPPERY_CUSTOMERS


                                                    February 14, 2010
                                                    October  21, 2014
The topic at hand: in the case of
a legal mind like Richard Posner
argument is raised to an art form:
Admire the cavalcade of
out-of-context quotations, distorted
references, and straw-man arguments.
                                                         KRUGMAN_INCLINED
   Back to Posner's Grand Critique of Paul Krugman,
   published in the reflexive "Public Intellectuals:        Pay no attention
   A Study in Decline".                                     to these cryptic
                                                            notations...

   On p.101-3, there's a discussion of                         IMG_7121.JPG
   something Paul Krugman was saying                           IMG_7120.JPG
   about amazon.com and the on-line
   price discrimination.

   It's a good idea to check with the
   original when dealing with the                 You can read some (but
   Posners of the world, so let's do              at the moment, not all)
   that...                                        of Posner's critique
                                                  on-line here:
      The original:
      "What Price Fairness?",                        [ref]
      _The New York Times_                           [ref]
      October 4, 2000
      [ref]
      [ref]

   As usual, Paul Krugman's exposition is
   admirably brief and clear, and it's
   hardly worth the effort of summarizing,
   but I'll give it a try:

         Amazon has been charging different
         prices of different customers for
         the same products (movies).

         Amazon insists that this was just
         some sort of experiment in random
         pricing, and denies it was targeted
         against different users.

         However, it's easy to imagine Amazon
         or a company like Amazon doing this,
         using it's knowledge of past
         purchases to predict what a customer        Before we lose track of
         will be willing to pay in the future.       what's actually important
                                                     here:
         Krugman discusses how
         this kind of differential                     Does that sound
         pricing can help improve                      cool to you?
         economic efficiency, and
         points out that the cycle                     Do you like the
         of publishing a hardback,                     idea of a retailer
         then a paperback is                           pushing up the
         intended to do something                      price when they
         similar-- the early                           see a sucker like
         product is sold with a                        you coming?
         higher margin to make
         more money off of people               I find it tremendously
         who want it more.                      funny that rather than call
                                                this kind of individually
         Krugman, however, calls                targeted pricing "price
         the hypothetical Amazon                discrimination" people are
         practice "undeniably                   calling it by the snazzy
         unfair: some people pay                sounding euphemism "dynamic
         more just because of who               pricing".
         they are".

         He then closes with a suggestion
         that this practice may already
         be illegal, pointing at the
         Robinson-Patman Act.

            Posner in his critique of all this
            says that Krugman was reading the
            Robinson-Patman act wrong (it applies
            only to distributors), and goes on to
            insist that there's nothing at all
            wrong with Amazon using targeted
            pricing--




            There are two things that are striking
            about Posner's representation of what
            Krugman was saying.

            One is very peculiar: from Posner,
            you get the impression that Amazon     This seems odd (to me),
            definitely does this, but Krugman      because I had the impression
            made clear it was just a suspicion     that Posner wanted to
            that they were doing it.               defend Amazon.

                                                             THE_LONE_TIT
            The other is that Posner ever so
            slightly distorts Krugman's claim
            about the Robinson-Patman act, to
            make it sound like a much bigger gaff.

            Here's Krugman:

            "In fact, dynamic pricing might already be
            illegal. I'm no lawyer, but it looks to me as
            if the Robinson-Patman Act, which outlaws
            price discrimination across state lines
            (though strictly speaking only if it hurts
            competition), could be invoked to prevent
            dynamic pricing. But it's a judgment call-- ..."

            Here's Posner:

            "He is wrong about the Robinson-Patman
            Act.  It does not outlaw price
            discrimination; if it did, examples
            that Krugman gives of commonplace,
            unexceptional price discrimination in
            the publishing industry, such as the       By the way: I might be
            price difference between the hardback      inclined to assume that
            and paperback versions of a book, a        Judge Posner knows more
            difference that invariably exceeds any     about this than I or
            difference in the cost of publishing       Krugman, except that he
            the two versions, would be examples of     also saw no problem
            unlawful activity."  And so on.            with the Supreme
                                                       Court's interference in
              Got it?  Krugman was                     the 2000 presidential
              tentative, but Posner                    election.
              elides that detail,
              because he wants to                              This is not
              complain about Krugman                           someone who's
              playing fast and loose                           legal opinion is
              with the facts when        (And at least         trustworthy when
              dabbling outside of his    on this one           you're anywhere
              own field.                 point, for            near a political
                                         once Posner           issue.
              Actually, you could        is not
              use this to make           outside of
              the opposite case:         *his* own
              when Krugman moves         field.  Or
              from economics to          not too far
              the law, he gets           outside.)
              very cautious.


                                                          IMG_7119.JPG
   In Posner's discussion of "discriminatory
   pricing" (p. 103) he continually conflates
   charging different prices for different
   products (hardback vs. paperback) with
   charging different prices of different
   customers.

       This is so transparently dumb with
       a capital D, it makes one wonder
       where his reputation for
       "brilliance" comes from.


       Paul Krugman doesn't have any
       trouble seeing the difference,
       and I suspect neither do the
       rest of us:

       "So publishers try to sort
       customers indirectly. Most books
       are offered first in hardcover,
       then some time later in
       paperback. The paperback is            Interestingly enough, they
       cheaper to produce; but mainly         might be able to get the
       its lower price is a way of            same result out of
       pulling in price-sensitive             releasing a product at one
       customers after the juice has          price, and then dropping
       been squeezed out of the well          it later... the point of
       heeled and impatient."                 issuing a more durable
                                              hardback edition is to
       "But in the world of e-commerce,       give the people who paid a
       such crude market segmentation         premium the *feeling* that
       isn't necessary."                      they've gotten something
                                              for their money.




 Here's a good example of
 Posner's fighting style:

 "The consumer who has to pay full
 fare to travel to a funeral is           Here, the freedom to set
 discriminated against because of         prices is conflated with
 his special need, and likewise           "discrimination"...
 the consumer who must buy the
 hardback version of a book                                     I doubt that
 because he needs it for a course                               Posner would
 and the paperback version has not                              take this very
 been published yet.  Maybe those      Indeed, most of us       far, because I
 instances of price discrimination     do not regard them       suspect you can
 are 'fairer' than what Amazon.com     as unfair.               use it to shoot
 is doing.  Krugman evidently                                   down capitalism
 thinks so.  It is his claim that                               in it's
 ordinary price discrimination                                  entirety.
 (though he thinks it unlawful!)
 in undeniably fair and what              Krugman has not
 Amazon.com is doing is undeniably        stated that he
 unfair that is extravagant."             thinks what Posner
                                          is calling "ordinary
                                          price discrimination"
                                          is unlawful....

                                             Posner has stated that
                                             Paul Krugman *should*
                                             think it's unlawful,
                                             given Krugman's suggestion
                                             that dynamic price
                                             discrimination *may*
                                             be illegal.

                                                Got that?  I realize it's
                                                a mess-- and it could be
                                                it's *intended* to be a
                                                mess, you're not supposed
                                                to be able to straighten
                                                it out without more brain
                                                work than it's worth.

                                                It's a way for Posner to
                                                get in a free hit: he
                                                distorts some text that
                                                you don't have in front
                                                of you, then exaggerates
                                                the position a little
                                                more, and postures about
                                                how it's all so
                                                outrageously extravagant.

                                                And then later, in still
                                                another place, he can
                                                claim that he's already
                                                demonstrated at length
                                                Krugman's intellectual
                                                failings and reference
                                                this book.

                                                    Now, it could be that
                                                    Posner really is a
                                                    deluded intellectual
                                                    light-weight, and he
                                                    really thinks that
                                                    this is all playing
                                                    fair.

                                                    I strongly suspect that
                                                    it's an entirely cynical
                                                    maneuver, exploiting
                                                    the difficulty of
                                                    tracing literature
                                                    references for the sake
                                                    of scoring political
                                                    points.


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