Taken to the Cleaners?
Nobody can explain why laundries charge less for men's shirts than for women's.
That argument rests on the fact that dry cleaners are highly competitive. If Microsoft ran the entire dry cleaning industry, it might very well choose to discriminate against women (or men, depending on market conditions). But in the world we live in--or at least in the neighborhood I live in--there are so many interchangeable dry cleaners that none of them should be able to get away with exploiting anyone.
One of my colleagues' wives insists I've got this wrong--she says she's so loyal to her own dry cleaner that no discounter can lure away her business. If most customers are as devoted as she is, then each dry cleaner is like a mini-Microsoft, with its own captive customer base. In that case, price discrimination can survive. But I am instinctively skeptical that many customers are as fanatically loyal as my colleague's wife.
The theory that only a monopolist can price discriminate is standard textbook fare, and it's borne out by a lot of observations. Movie theaters have a certain amount of monopoly power (on a given night, a given moviegoer is likely to have a strong preference for a particular movie at a particular theater), and they price discriminate by offering discounts to senior citizens (which is equivalent to discriminating against everybody under the age of 65). Airlines have even more monopoly power--once you know where and when you want to fly, you are likely to have an extremely limited choice of airlines--and they heavily discriminate against business travelers by charging more for midweek flights than for weekend flights (when most travel is for leisure).
B y contrast, in the most competitive industries, there is no price discrimination. As I am fond of pointing out to my students, you've never heard of a wheat farmer who offers senior citizen discounts. Likewise for gas stations, which are ubiquitous and sell to everyone at a single price.
Well, at least that's what I used to tell my students. But I might have to make a small change in my lesson plan. The gas station nearest our campus has just announced a policy of senior citizen discounts on Wednesday afternoons. Is this price discrimination in favor of seniors, or does it reflect a genuinely lower cost of serving them?
If you push me hard enough, I can probably concoct some kind of story about lower costs. Maybe seniors tend to drive cars with bigger gas tanks, so they buy 20 gallons at a time instead of 10, thereby saving on the cost of processing credit cards. (A significant part of that cost is the time spent waiting for the card to be approved, during which the pump is unavailable.) But if this cost saving is significant, why has only one local gas station recognized it? And why is it significant only on Wednesdays?
I have suggested to my colleagues that none of us should be permitted to present ourselves to the world as economists until we figure out what this gas station is up to. Nobody has risen to the challenge. A few have suggested that perhaps the gas station owner is just a little quirky. Maybe that's right. But it would be far harder to believe that the entire dry cleaning industry is just a little quirky. Either there is enough monopoly power to sustain price discrimination, or there is some reason why women's clothes are incredibly expensive to clean and press. But I have no idea which.
Steven E. Landsburg is the author, most recently, ofMore Sex Is Safer Sex: The Unconventional Wisdom of Economics. You can e-mail him at firstname.lastname@example.org.