The Undercover Economy: Chapter 2 - Summary & Response

In Chapter Two, "What Supermarkets Don't Want You to Know of his book, The Undercover Economist, Tim Hartford explains why stores can get away with charging you what they do and how they go about doing this. He begins this chapter by reiterating that scarcity power does not always equal the ability to charge more; instead there must be a reason for people to want to pay more. Hartford gives the example of the Fair Trade coffee, which made people feel like they were helping other people, so they were willing to pay the extra ten cents or so. He goes on to talk about 'price targeting' where companies figure out the most a customer is willing to pay for a product and charge that. The first way to do this is what Hartford calls 'first degree price discrimination' or the 'unique target' strategy, where each customer is individually evaluated and charged based on amount willing to pay. Examples of this include realtors, car salesmen, and discount cards. The next strategy Hartford describes is called 'Group Target Strategy' which is when certain groups who generally can pay more, are charged more. An example of this would be charging a lower price for the elderly or children and a higher price for adults, who are more likely to be employed. Third, Hartford explains the third method, which is 'self-incrimination' where you get customers to give themselves away as not caring about the price.Hartford gives the examples of popcorn at a movie theater and wine at a restaurant here because if you are on a date, you do not want to seem too stingy so you will pay for the expensive things. Hartford goes on to discuss stores' strategies for making people pay more including not having cheaper options available or obviously presented, keeping similar products of varying prices away from each other, and having a higher 'basic' option. Supermarkets will also have spontaneous sales so that people cannot fully take advantage of the sales because they will not be able to plan for them. Finally, Hartford defines and explains the terms inefficient and efficient. Inefficient situations are when a change can be made to one or more person, leaving them better off, and no on is worse off. On the other hand, an efficient situation is one where a change is made where someone is left better off, but at someone else's expense.

People do not only pay high prices because of supply and demand, but also because of reasons such as feeling like they are making a difference by paying more. This is applicable to things such as fair trade coffee, where you feel like you are contributing to a cause. Sometimes people pay more money because they can and they want the best product, which they rate by price and possibly quality. I have been in athletic stores, especially during October, where everything that is being sold is also being sold in pink for breast cancer awareness month. While some of these products are the same price as their alternate color counterparts, many are more expensive when they are pink. Many of these products boast that they will put all of the proceeds towards breast cancer research or something to that effect, but there are some pink products that are more expensive simply in order to "show your support." Hartford describes three methods through which retailers determine if a customer is price sensitive or not. The first method is  'first degree price discrimination' or the 'unique target' strategy, where each customer is individually evaluated and charged based on amount they are perceived as being willing to pay. For example,  realtors, car salesmen, and discount cards are all guilty of doing this. Another strategy Hartford describes is called 'Group Target Strategy' which is when certain groups who generally can pay more because generally they are working, are charged more. An example of this would be charging a lower price for the elderly or children and a higher price for adults, who are more likely to be employed. Third, Hartford explains the method, 'self-incrimination' where you get customers to give themselves away as not caring about the price.Hartford gives the examples of popcorn at a movie theater and wine at a restaurant here because if you are on a date, you do not want to seem too stingy so you will pay for the expensive things. According to Hartford a grocery basket from an artisan grocery store can cost more than one from a cheaper store because the cheaper store offers cheaper options, possibly lower quality or generic brand, while the artisan store does not. Additionally, the basic at an artisan store are usually different and lean towards more expensive products than at a cheaper store. Retailers get people to shop at their store by offerings good prices, but also by offering good quality, although this is not always enough. In addition, retailers will have random sales on random items in order to get people to shop at their store, but also make money because the sale is so random that it cannot be planned for necessarily.