It is not uncommon to hear that the same product is sold by different sellers at different prices, which supposedly contradicts the economics of supply and demand. It is common for such reasoning to refer to things as “the same” that really are not. Let’s understand why there are different prices for the “same” thing, according to the book Principles of Economics.
Different conditions – different prices.
Physically identical things are often sold at different prices. This is usually because of different related conditions.
Goods that are sold in nicely decorated stores with courteous, pleasant qualified staff and an easy return system are likely to be more expensive than the exact same items presented in some no-frills warehouse-store and not subject to returns.
One magazine in Northern California compared the total cost of identical food sets from the same brands at various grocery stores in its region. It turned out that the cost ranged from $80 at the cheapest store to $125 at the most expensive. Even at three different supermarkets in the same Safeway chain, the price ranged from $98 to $103.
Part of the price difference is due to the cost of real estate in different neighborhoods: the store with the lowest prices is located in cheaper Fremont, while the store with the highest prices is in San Francisco, a city with expensive real estate. As the value of the land on which the stores stand differs, so do the prices charged to customers, as they are designed to make up the difference.
Warehouses and time
Another reason for the price difference is the cost of maintaining inventory. The cheapest store had only 49% of the items on its shopping list in stock, while all three Safeway stores had more than ¾ of the items on that list in stock. The price difference reflects the difference in the cost of maintaining large inventories, even though the items are physically the same.
The cost to users, expressed as time spent shopping, also varies. This includes the number of hours and minutes a customer spends moving between stores in search of the item they want and spending in queues to the cash register. One expensive supermarket was rated “excellent” for speed of service by 90% of customers, while one of the cheap warehouse stores was rated that way by only 12% of customers. Store customers pay with both money and time, so consumers who value time more than money often choose to pay more to save a precious resource and avoid the annoyance of waiting in long lines or having to go from one store to another to buy all the products on their shopping list.
In other words, people shopping in different stores pay different prices for different products, even though at first glance they appear to be the same when judged solely by their physical characteristics.
From Principles of Economics.
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