Price discrimination by cognitive load

Price discrimination is a practice where sellers of a product try and sell materially the same product to different customers at different prices closer to their willingness to pay. Economists probably have opinions on whether this is good or bad, but I'm going to focus on a specific mechanism for it here. Price discrimination requires some way to show different customers different prices: this might be through timing, very slightly different variants of the product, location or directly selling to customers without a public price.

One perhaps more modern variant is to discriminate through making prices extremely confusing. I initially thought of this while discussing airline ticketing with one of my friends: the pricing of air fares is famously so complex that it is literally impossible^[1] to determine the best price for a journey in some possible cases. One possible explanation is that the airlines want to price-discriminate by offering fares with strange restrictions to more price-sensitive buyers while charging more for convenient journeys. However, in some cases it's possible to pay less for exactly the same journey with the same features through a more complicated purchasing structure!

This can be explained away as an oversight - perhaps the airlines do not understand the implications of their actions - but this seems implausible given the ruthless cost-optimization of their other operations. A more egregious example is the UK's rail ticketing system: it is sometimes cheaper to buy tickets from A to B and B to C separately than to buy a single ticket from A to C directly, with no implications for the traveller (it's permitted to stay on the train) except slightly more complexity in booking, possible issues with seat reservations and having to show tickets slightly more often. National Rail knows about this, and clearly has for several years, but doesn't seem to care to fix it. This, too, can be explained by the patchwork and incoherent structure of UK rail, but it may also function as a strategy to maximize profits.

Generally, the organizations are - deliberately or not - showing busy or price-insensitive customers one higher price while providing price-sensitive ones lower prices through more effort, but at sale time rather than use time. Some other more arguable examples are, for instance: mail-in rebates (a bizarre US practice where you are refunded part of a product's price for manually mailing in a voucher); online shopping platforms offering an expensive headline price for a product for quick purchases and a list of cheaper alternatives containing, somewhere, an identical or near-identical offering which is hard to find; the horrors of American prescription drug pricing.

This is mostly relevant where resale is impractical or the price difference is low, or crafty organizations would simply arbitrage the pricing. But there's another route for external organizations to profit from this price structure: selling the service of automatically navigating the pricing for you. Services for this do in fact exist for the transport ticket cases, so it's reasonable to ask why the discriminatory structure still exists at all. I think this doesn't break the equilibrium so much as shift it: the discriminatory services are often protective of their pricing data, so automatic solutions need their cooperation - which is often granted. Instead of selecting consumers on willingness to solve nonsensical discrete optimization problems, it selects them on willingness to go to some extra effort to use another service to, and knowledge of the existence of clever tricks. Perhaps this is almost as good.

This may not be an especially important pattern, but I think it clarifies some things, it seems novel enough that I wasn't easily able to find preexisting work on it (though maybe I don't know the right terms, or it's buried in other things), and it permits me to feel vaguely annoyed that the world is not run by a perfect machine god executing zero-waste central planning.

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1. Uncomputable - apparently, there's some construction which lets you reduce diophantine equations to fare search problems. ↩︎