Why does Doctor Barbie cost twice as much as Magician Barbie?
And the business travelers cannot get out of paying a higher price for the basic flight—at least not if they want to eat the warm nuts.
How does this explain the Barbie pricing? Richer people, on average, are going to be willing to spend more for a Barbie. Knowing this, Barbie’s distributors would ideally like to base the price of any Barbie on the buyer’s income. But they have the same problem the airline does: From the other side of a computer, or even a cash register, it can be hard to see people’s income. And you can’t simply ask a cashier to charge someone more based on, say, what car key they are holding, or how expensive their coat looks.
But the sellers can use price discriminate just like the airlines do. Imagine that some kinds of professions are more attractive to people with higher incomes—doctors, for example, or teachers. This could be because the richer people themselves have those jobs, or because they care more about their children aspiring to those jobs. Barbies with those professions attract a richer segment of the population. Therefore, stores can effectively charge richer people more by charging more for these particular Barbies.
This works even if everyone values higher paying jobs more for their children. All it requires is that richer people care relatively more about that aspect of the Barbie. And there is no way for the richer people to get out of paying more by pretending they are poor: Since they want the Doctor Barbie, they have to pay the premium.
Of course, there could be other explanations for these price differences—maybe it costs more to manufacture those little doctor bags for some reason. But it’s telling that the most expensive Barbies tend to be the ones with the highest income jobs: doctor, computer engineer, paleontologist. To my inexpert eye, Doctor Barbie and Magician Barbie certainly look almost exactly the same. You are just paying an extra $12 to avoid your child aspiring to a career in magic.
Once you are aware of this kind of pricing scheme, you see it everywhere. Purchasing your movie tickets online? That’ll be a $1.50 “convenience fee.” Seems odd when you think about it: The person for whom this is really convenient is the owner of the movie theater, who now doesn’t have to pay a teenager to sell you a ticket. Really, on cost grounds, you should be getting a discount! But, of course, the owner of the movie theater has figured out that people who are willing to pay more also tend to be less willing to wait in line, partly because they see their time as worth more. You can’t just charge them more for the ticket, but you can offer them something that they find especially valuable, and charge them for that.
You do have to be a little careful, however. After pondering whether I should actually buy a paleontologist Barbie for my daughter ($21.35!), I remembered I was supposed to buy a car seat sled to drag our car seat around the airport at the holidays. I Amazon searched “Car Seat Travel” and looked at the first two things that came up. The pictures looked the same, but one was $14.49 (“Traveling Toddler Car Seat Accessory”) and one was $69.99 (“Roll and Go Seat Transporter”).
Steeped as I was in thinking about price discrimination, I figured that the more expensive one was really no different, maybe it just came in a nicer color, designed to lure in people for whom money was no object. I clicked Buy on the $14.49 one, congratulating myself at having avoided throwing my money away. That is, until the package arrived and I realized that while $69.99 would have gotten me a car seat sled, $14.49 got me an (actually quite expensive) piece of rope that I could use to tie my car seat to my roller bag.
Back to the computer for Amazon order No. 204.
Editor's Note: The prices in this article reflect the listed prices at the time of publication. Retailers regularly adjust these prices over time.
Emily Oster is an associate professor of economics at the University of Chicago Booth School. Her forthcoming book is Expecting Better: How To Fight the Pregnancy Establishment With Facts. Follow her on Twitter.