We are taught throughout life the evils of discrimination (rightfully so I must add); however, the social construct of discrimination has led us to see the idea as wrongful in all senses of the word.
Google’s dictionary defines “Discrimination” in two distinct fashions: 1) “the unjust or prejudicial treatment of different categories of people or things, especially on the grounds of race, age, or sex” and 2) “recognition and understanding of the difference between one thing and another.”
The former is the definition we are all familiar with for it is prejudicial discrimination that has stratified races and led to countless instances of conflict. The latter definition is seldom used; however, the idea of differentiation of things is essential.
I am not trying to philosophically differentiate the definition of discrimination, but rather I am forced to define the word for the purpose of this post: price discrimination.
“Price discrimination” is an economic concept where prices are assigned in a discriminant fashion. When the word “discrimination” is used in “price discrimination” one should think of the second definition of the word. For example, let us say you walk into a coffee shop and you order a large cup of steamy black coffee. The barista says “that will be $2.50 sir.” You fork over your cash and step to the side as the mug is filled. The individual behind you says, “Hello, I would like a large black coffee” to which the barista answers “that will be $2.00 sir.”
What the hell!? I ordered the same thing and you charged me an extra $0.50. What is this blasphemy!? That “blasphemy” is price discrimination at its finest: the charging of two different prices to two different people. Most of us would protest the cost of our drink had we overheard the exchange and probably demanded our money back or at least scratched the tip, but in doing so we are assuming the prejudicial definition of “discrimination.”
Price discrimination is not always an evil and can, if well-orchestrated, be used as a beneficial way of redistributing income. We always focus on the act of taxing income when we discuss the redistribution of wealth; however, we may be focusing on the wrong side of the equation. Let me try to explain the “equation” I am referencing.
Money is not valuable in its independent form. Pick up a dollar and rip it in half! No? Why Not? In its purest form, a dollar is worth $0.05 (the cost of the paper and the ink used to make our currency). Thus, it is not the actual worth of the dollar that is impactful, but the purchasing power that dollar commands, or the goods that we can actually buy with that dollar. (For those economic/monetary lovers, this is the differentiation between fiat and commodity money.)
The value we assign to seemingly meaningless paper enables the purchasing of everything from coffee to cars; however, when we think about the inequality in the economy, we focus on the accumulation of money. Specifically, we are aghast at the quantity of dollars one makes, yet we do not think of that in terms of the amount of goods the individual can buy. To redistribute the wealth, we tax the income at different tax rates (higher for rich and lesser for poor) to help quell the number of dollars one can accumulate. Rather than focus on the inflow of money, why not consider the outflow of money? If Bill Gates goes to the coffee shop, he has the means to fork over $10.00 or $10.50, but he, like the rest of us pay our measly $2.50.
Does this make sense? “Well, Ben, think of the burden for businesses to track the cost of goods in a discriminant fashion.” I agree, the burden would be immense, but with the digitalization of monetary transactions via credit cards, suddenly this burden is drastically reduced.
For example, you go to a restaurant and swipe your credit card. For those in the lower income brackets, they pay cost, or the exact amount of money for the food ordered (or even less through food stamps); however, for the rich, they pay a bit more to account for the profits of the store. Thus, we redistribute the wealth through the cost of the goods rather than the income.
Still far out? What if I told you there is evidence of this already occurring? Consider this article by the Atlantic. The article describes how computer algorithms are price discriminating based on real time demand. In many ways, this is identical to surge pricing as instituted by Uber.
Is discrimination of prices evil or a solution to an evil problem?
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