Answer to Pricing Puzzle – Pricing railroad transport for pigs and sheep in 1831

This data comes to us from the book on history of railroads. The book does not tell us why there was price difference.

What follows is a speculation based on limited available facts and application of logic and not an authoritative answer on the history of railroad pricing.

So why would the railways charge different price for transporting pigs and sheep?

It might be tempting to think of weight argument but compared to weight of railroad cars, especially in 1831 when they did not have light weight anything, the weight difference  between the two farm animals would not even registered to make any dent in the fuel cost. Don’t forget the inefficiencies of the steam engine and the transmission losses.

Another possible argument can be made based on opportunity cost. This is based on space occupied by the animals. It is a very reasonable argument based on opportunity cost of space. Such an argument implies the pig occupied twice as much space as a sheep. Given there were no industrialized pig farms and no GMO fed pigs it is a stretch.

So we return to asking what job were the Irish farmers hiring the railway for? For transporting their animals to the market in shorter time. The only other alternative was horse drawn carriages which was unreliable and took much longer.

They would hire the railway if it delivered better profit despite its cost. So one of two possible scenarios are the most likely answers to this pricing puzzle

  1. Sheep were sold at lower price than pigs. So the farmers likely did not see incremental value from choosing railways at the same ticket price for pigs. So railways aligned price with value delivered (and reference price).
  2. There were other alternative avenues to sell sheep  – may be they didn’t have to go Manchester to sell them, they could sell them in close by markets. Railways had excess capacity (which is non-inventoriable) so they aligned price with low customer demand.

Net-Net it comes to customer needs and practicing second degree price discrimination.

What does this mean to you as Product Manager?

Consider a cloud service you are providing – be it SaaS or PaaS. Do you want to charge the same price based on metering (minutes and gigabytes) or align your price with value delivered to customers? How would define your offering such that those high value customers choose the premium option? What type of benefits should be in the premium option?

Other puzzles:

  1. Restaurants charging fees for sharing