Christmas animal spirits?

Photo courtesy of welshkaren

It’s Christmas! Well, nearly, at least. And as the madness of the Christmas season takes hold, consumer willingness to spend increases significantly compared to the rest of the year. With so many friends and family members to buy gifts for, the overall level of demand in the economy increases.

It’s a great time for retailers. As consumers spend more, their revenues increase. In fact, consumers are willing to pay far higher prices in order to fulfil the social expectations of giving high-value gifts, at the same time as being rushed off their feet and less willing to spend time looking for a good deal.

In comparison, the post-Christmas period is a sales bonanza, seeing equally mad behaviours emerge as people hunt for a cheap deal. Shoppers camp out and queue for the sales that start at an unearthly hour in the morning. The USA’s similar post-Thanksgiving ‘Black Friday’ sales have prompted violent and sometimes fatal behaviour. It was thought that a fatal stabbing during last year’s Oxford Street Boxing Day Sales was due to the retail frenzy.

Firms have begun to take advantage of these very different markets. By charging high prices before Christmas, when demand is price inelastic; and offering discount deals after Christmas, when demand is price elastic; they are able to increase their revenue in both periods. This is an example of price discrimination: where firms charge different prices in different markets to maximise their revenue.

Economic theory would hold that this can only be a good outcome. Is this true?

Comment if you know which famous (and peerless) economist's works the title refers to.

The article below explores the phenomenon in more detail:

Clement Wong’s article

Fatties surcharge proposed for airlines

A former QANTAS economist has proposed that overweight people should pay more to fly.

When you fly you are given a weight limit for you luggage. A base amount might be 20Kg or 23Kg, which is not that much for a long trip. Ryanair charge €12 per Kg for overweight bags (and more for each extra bag).

And yet as you queue up you see people of all shapes and sizes and their weight differences make the luggage weights look insignificant. So why not charge passengers by their combined body and luggage weight rather than per seat?

This may seem rather odd, even discriminatory. But the heavier an aeroplane is the more fuel it uses. So the airlines costs are affected and in a market prices should be (partly) determined by costs.

The economics of this idea is known as price discrimination. Customers are charged different prices for the same product. Usually this is according to when they buy, or where they buy the product, but this is a quite reasonable extension of the idea.

Of course for overweight people this will be a new way of improving on the market failure caused by the 'lack of information' goods - high fat foods!

The ABC report the story here - please tell me if you can't see the video