The Price of Andersen's Ice Cream
Labels: books, economics, price
I have been reading Naked Economics by Charles Wheelan, and it has been amazing so far. But my first real insight from it came when I was buying ice cream yesterday.
Andersen’s Icecream in Singapore sells a single scoop of ice cream for $4.50. You can however, have a double scoop of ice cream for $5.50, just a dollar more.
The concept at play here is price discrimination, albeit with a slight twist. From a seller’s perspective, it costs virtually nothing for Andersen’s Icecream to provide you with that extra scoop of ice cream. From a buyer’s perspective, there are two scenarios. You might be willing to pay $5.50 for that extra scoop because of the satisfaction you derive from it, or you might be thrifty and decide that you will be satisfied with just one scoop. Ignoring the size of the scoop for a moment, there are now two different price points at which Andersen’s is selling their ice cream, and hence maximizing their profits.
So what use is this insight to me, you ask. Well, I actually went to buy ice cream with Divya, and I paid $5.50 for two scoops of ice cream. Except, that Divya and I split the cost and shared the ice cream :). If both of us had got a single scoop each, it would have cost us $9. We ended up saving $3.50. Andersen’s is quite lucky that most people who eat ice cream will probably not read Naked Economics.
Incidentally, the first time I came across price discrimination was in a famous essay by Joel Spolsky titled Camels and Rubber Duckies, where he discussed the mechanics of pricing software. Read it, it’s quite funny!
Post a Comment