Ch. 2 of The Undercover Economist

In Chapter Two of The Undercover Economist, author Tim Harford explains the mindset behind the way products are priced in stores. Hartford states that businesses that have scarcity power do not have unlimited power because they can’t charge as much money as they want to customers for lack of potential sales. The goal of many businesses is to provide prices that are cheaper for people are thrifty, but also higher prices for those who do not care or focus on how much they spend. Using certain strategies like offering fair trade products, adding frills to typically cheap drinks, and editing location of precepts in a store, can all affect how much customers will pay, claims Harford. This allows for businesses to see who will pay, and how much people will pay, for certain products. There are three strategies to finding what customers will pay for certain products. They are the first degree price discrimination strategy, which focuses on the individual and sensing how much they are willing to pay. The second is offering different prices to members of distinct groups, such as reducing prices for the elderly or children. The last, Harford explains, is the self-incriminating strategy where customers unintentionally reveal how much they would be willing to pay based on the products they purchase. Harford explains that price-targeting is often turned into an art by a variety of companies, and makes it clear that there are hidden price strategies to everything businesses do.





In the second chapter of Tim Hartford’s book, The Undercover Economist, Harford explains that businesses that have scarcity power, do not necessarily have limitless power. Although supply and demand may be a reason why stores can charge high prices and people will pay them, it is not the only reason why people pay high prices. Stores often try to offer less expensive and more expensive options to their customers so that they can appeal to frugal consumers, and those who do not pay attention to price as much. Their goal is to see how much they can charge a customer and still have successful profits. Stores will often offer things like fair trade coffee, which is naturally more expensive, or use fancy wording for products that are basically the same. For example, Harford mentions how almost all of Starbucks products cost the exact same amount to make, but by adding fancier names and more frills, Starbucks is able to charge different prices for their products and “smoke out customers who are less sensitive to price.” (pg. 35) People may also be unaware that there are things that are offered at a cheaper price in a store. Harford mentions that quite often organic foods are placed next to non-organic food that is different. For example, organic bananas may be placed next to non-organic cucumbers, so if you’re in a hurry, and the bananas are the first thing you see, you’re going to pay a higher price for those bananas than you would for non-organic bananas somewhere else in the store. Harford also discusses why certain things that aren’t scarce have such high prices. An example of this I have experienced are sports bras at Victoria’s Secret.The price of a typical sports bra at a store like Target ranges between $10 and $25. But at Victoria’s Secret, bras are around $50 or more. People can get sports bras anywhere, yet Victoria’s Secret seems to be one of the most popular places to purchase one, even though their prices are extreme., because the store is often associated with beauty and style. Another example is Wegman’s. Compared to places like Tops or Walmart, Wegman’s is quite expensive. They don’t offer anything that is particularly scarce or unique at Wegman’s, but what they do offer is a huge variety of options and a enjoyable, comfortable shopping experience. In addition, retailers target certain people in different ways in order to determine who is price sensitive or not. For example, whenever I go shopping, it is clear to retailers that I am young, probably don’t have a ton of money to spend because I am a college student who hasn’t really entered the workforce yet, so I may be hesitant to spend a lot of money at a store. Quite often when I go clothes shopping, people working in sales will explain to me several sales they have going on, and the try their hardest to persuade me to get certain clothing items because they’re good deals. If I was older and looked like I had a wealthier lifestyle, they make push more expensive items on me.