Take a moment and think about this pricing scenario. What do you think the pricing for slim-fit shirts should be compared to regular-fit shirts of same brand, material and design?
Logical answer would be slim-fit shirts should be priced higher than regular-fit because there exists a smaller set of customers who prefers the look of slim-fit and value it enough to pay more for it. After all, demographically there are not many that would fit (and look) stylish in slim-fit and for those who want to look good with a slim-fit there is value that can be captured as higher price.
This would appear to be a perfect case of second degree price discrimination. Present two different versions at two different price points and let the customers self-select. It is fair too because all customers have the option to choose either one.
Except that is not how shirt makers think about pricing or set pricing. Here is how shirt makers set pricing
First they add up all the costs – including hours spent and fixed cost (overheads) allocation. The use “standard industry markups” to set wholesale price. Finally double it to get retail price. (And mark it down to generate sales)
It is as simple (or simplistic) as that. Cost based pricing with price markups and not based on customer value and willingness to pay.
Hence if you see same pricing for slim-fit and regular-fit it is not just a matter of missing out price discrimination it is a matter of setting the price wrong to begin with.
If you see different pricing it is highly likely that shirt makers chose to allocate different overheads – likely more to slim-fit because of smaller volume – than because they recognized opportunity for price discrimination.
Sometimes things are not as smart as you would like to believe.
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