Price discrimination?

Just went shopping to the neighbourhood booze shop.

Unbelieveable!  An can of Kingfisher(330 ml)  that cost me Rs 40/- a week ago, was quoted at Rs 50/-.

And I bought.

Is it a wonder I am still foolish, still hungry?

Or are these the much vaunted “learning costs” that an ex-professor of mine at NYU wrote about?

Even a guy as dumb as me should know that prices do not go up that much in ten days.

What I could have done was to have checked out the price at a booze store just down the road.

But I didn’t.  Instead I paid, and am now cursing.

Jonathan Livingston See Gull, perhaps?

But this is the way markets universally work.  That’s why I don’t like markets.

(The printed price incidentally has gone up from Rs 37/- to Rs 39/-.)

“Girhak dekh ke pudi bandhega, kya”

Reminds me of a story an old friend of mine once told me about the Indian Bania traders in Africa:

A tribal would come to their shop, look at the left side of a pair of chappals and ask “How much is this?”.  And the answer would be 20 kwachas or whatever.  Then she would pick up the right side of the same pair and ask “And how much is this?” and the shopkeeper would then promptly take double the price for a pair of slippers.  Isn’t the first thing they teach you at graduate school in economics “caveat emptor”? (No, actually the first thing they teach you is a simple problem in the calculus of variations-the optimal rate at which a depleteable and finite resource should be extracted.  Then onto the Hamiltonian version of the Lagrangian problem.)

You may now begin to understand why I paid without a murmer.

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4 Responses to “Price discrimination?”

  1. HyperActiveX Says:

    You have your opportunistic neighborhood booze shop on the one hand, and then on the other you have Black-Sholes 🙂

  2. sxray Says:

    @ Hyper

    Isn’t it the same thing? No, I mean, really? I’ve been wanting to discuss this with you for a long time.

    I’m not familiar with the screens, but you know them well (BOLT I refer to here). I mean, can’t the system be gamed by collusive sets of ring traders. I’d like to know more about this. I don’t know if you can or want to talk about this. We can take it offline.

  3. sxray Says:

    @ Hyper

    And from my training in Finance I think I remember that the Black-Scholes price involves an implied volatility parameter that can be put in by hand by the trader, to get any price he wants. Do correct me if I’m wrong.

  4. HyperActiveX Says:

    1 – Sure, any time. Offline would do as well … when in mumbai next, do ping me, and when I’m in Bengaluru I shall do likewise. Would be nice to chew the fat in general – its been a while!

    Short answer for now – it is far more difficult to game an electronic trading system, but not impossible to do so. When we built BOLT, we provided for adequate surveillance and regulatory controls: in real-time, as well as post-facto, to detect malpractices. obviously, these could only cover malpractices that were known to regulators at that time. Crooks always stay one step ahead of the law! But the system gathers intelligence cumulatively and grows more robust with time. Hopefully. On the other hand, manual / open-outcry trading is far more difficult to regulate – impossible in real-time and very difficult in batch / off-line mode. More on this later.

    2 – As usual I don’t recall the math – haven’t been close to it for a long time now, but I think you may be right. However, my little joke was about the two extremes of sophistication of pricing mechanisms. The reference to Black-Scholes ( no typo this time 🙂 ) was aimed at characterizing the extreme sophistication at the opposite end of the spectrum from an ad-hoc intuitive response from your booze shop.

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