Answer to Pricing Puzzle: Pricing at Hindu Temple

I have written in detail about this pricing puzzle before.

The question of right and wrong here is not about ethics but about profit maximization that does not leave money on the table in the form of unrecognized consumer surplus.

It is not possible to set different prices based on the make and model of the car. For one thing it creates operational issues and the other it will create customer backlash. You do not want to create the class divide here by saying “1%” pay more than “99%”. A better way is to offer choices  at different price points (second degree price discrimination) and let the customers self select.

In fact, if there is only one choice at flat fee, regardless of value of car, the Lexus owners may feel they are not getting the level of service they want.

It is highly likely those who want their Lexus blessed would happily pick a higher priced version. And if the Corolla owners want to pick the premium version they are doing so of their own volition.

Price discrimination, specifically second degree price discrimination, is not unethical even at the altar of Gods.

On the other hand, the temple could look at the data on the mix of cars that are coming in for blessing. If higher proportion of them are in the Luxury category (bubble days in the valley, you know), they can simply increase the price for all. For the few that want their Ford Focus or Corollas blessed, the higher price may pose a deterrent but any lost revenue more than compensated by higher revenue from increased price.

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