The Wiki Man | 20 September 2008

I recently saw a photograph of a street vendor’s stall in Argentina. The menu reads simply Orange Juice $5. Jugo de Naranja $4.

Here unsuspecting Anglophones are paying a premium of 25 per cent for not knowing Spanish. It’s a practice known to economists as price discrimination — in other words setting a price in proportion to a customer’s propensity (or indeed ability) to pay. There’s a lot of it about — and in the internet age we can expect to see it more and more. How low a price will a website quote you for your new Mini Cooper if it knows you already own a Jaguar? It’s reminiscent of the famous comedy scene where Bill Cosby’s attempts to bargain down the price of a car are ruined when a passing friend greets him as Dr Cosby.

Price discrimination explains why, when you pay £200 for a hotel, your internet access costs an extra £15, while in cheap hotels it’s typically free. It’s easier to chisel an extra £10 from a guest in a £200 hotel than from someone in a Travelodge.

It’s everywhere. In fact I am writing this while travelling on a train from Newport to Reading with a first-class ticket bought online a few weeks ago for £22. The same journey under different circumstances could cost anything from £17 to £90.

Understandably people love to complain about these discrepancies, believing complex rail fares are more discriminatory than discriminating. Sometimes, too, they reject the hassle involved. In 2002 the German railways attempted to surcharge travellers who failed to buy tickets in advance; there was a revolt. Germans aren’t averse to forward planning (remember those towels) but, like anyone else, they sometimes want to hop on a train without providing advance notice.