Viliam_Bur comments on Things I Wish They'd Taught Me When I Was Younger: Why Money Is Awesome - Less Wrong

32 Post author: ChrisHallquist 16 January 2014 07:27AM

You are viewing a comment permalink. View the original post to see all comments and the full post content.

Comments (234)

You are viewing a single comment's thread. Show more comments above.

Comment author: Vaniver 16 January 2014 08:36:30PM *  8 points [-]

Sure. But consider airlines, and the revenue management they do, as a contrast.

The basic problem is that there is no single price-per-seat at which it is profitable to fly a plane. Imagine the demand curve as something like $1000/x, where x is the number of tickets sold on the plane. Regardless of the price you pick, your total revenue is going to be $1000, and if the plane costs $2000 to fly, you can't pick a single price for every ticket such that the plane is profitable to fly.

But suppose you could offer different customers different prices. The person willing to pay $1000 is charged $1000; the person willing to pay $500 is charged $500, the person willing to pay $333 is charged $333, and the person willing to pay $250 is charged $250. Now you've got a plane in the air, and $83 in profit (and another person paying $200 would get you up to $283 in profit). But this required you knowing which customer was willing to pay what, which is generally done by time-segregation (the amount of time you book the flight in advance, combined with the number of seats left on the plane) which is itself determined by sophisticated modeling.

There doesn't seem to be a public outcry about revenue management for airline tickets. Perhaps this is just because people don't understand what's going on underneath, or adjusting prices with time feels appropriate in a way that adjusting prices with supply doesn't, or because it's been this way for ~30 years and people are used to it now.

If you price the barbecue high enough that exactly the number of rich customers arrive that will buy all the barbecue, in a week from now those customers will be tired of barbecue and there won't be other customers to replace them.

This is not a problem for auctions, because the price drops when the demand drops, so long as the minimum price is set so that the market always clears.

Comment author: Viliam_Bur 17 January 2014 02:53:55PM *  1 point [-]

Analogically with the airlines, the current model should be the "economy class" barbecue, and there should be a new "business class" barbecue -- extremely expensive, but without having to wait.

Preferably with some additional differences -- sitting in a separate room, with pleasant music and paintings on the wall -- to make it easy to rationalize (by both kinds of customers) it as "paying extra money for extra luxury" instead of "paying extra money for cutting in line".

Comment author: Lumifer 17 January 2014 03:47:45PM 0 points [-]

the current model should be the "economy class" barbecue, and there should be a new "business class" barbecue -- extremely expensive, but without having to wait.

That model is used by Disneyworld and other theme parks. You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.

Comment author: EHeller 17 January 2014 05:58:27PM 0 points [-]

You can buy a regular ticket, or you can buy a premium pass which costs more but gives you the right to skip the lines at the attractions.

This isn't actually the case at the Disney park in California (not familiar with anywhere else). There are different season passes, but the premium ones just let you get in on weekends and holiday days and what not.

They do have "fast passes" but those are available to anyone- you go to a kiosk and get an appointment to come back to the fast-pass line at some later time.

Comment author: Lumifer 17 January 2014 06:15:37PM *  2 points [-]

Legoland, for example, sells a Premium Play Pass which gives you "front-line benefits". Universal sells the Express Pass which allows you to "skip the regular lines".

Disney, I think, is more wary of PR problems, but still you can buy the (very expensive) "VIP tour" which, as I understand, will allow you to ignore all lines.