Different people place different values on good and services, but merchants, traditionally, have had no way to charge each customer exactly the value he places on each product. The merchant thus sets one price that discourages some customers (the ones who place relatively little value on a product) from purchasing anything but charges other customers (the ones who really value a product) way less than they’d actually be willing to pay.
Initial efforts to charge different prices to different customers based upon their willingness to pay were crude programs like senior discounts. But technology allows for much better price variation, as the airlines have demonstrated for decades, soaking business travelers who don’t care much about costs while offering good deals to cheapskate leisure travelers with flexible travel dates and destination preferences.
Broadway theaters recently got into the act with flexible ticket pricing that found ways to charge more for show enthusiasts and less to marginal customers, and the system has proven a big success. Average ticket prices climbed AND tickets sold increased. Now, the Metropolitan Opera is introducing variable pricing, so you should expect ticket prices there to rise as well.
Single ticket prices will increase on average by 7.6% and subscriptions by 4.2%, opera general manager Peter Gelb said in an interview discussing the 2012-13 season. More than a third of the Met’s 3,800 seats will be available for less than $100, he said, and prices for the least-expensive tickets will drop to $20 from $25.
I’m not sure if this move will be good or bad for the total pleasure experienced by opera goers. Higher prices for those who would have gone before should make them less happy, but if the move does attract people who would not otherwise have gone to the opera, that should tend to make life better for those people.
That said, the overall trend of these variable pricing schemes must be to reduce consumer welfare. The ultimate goal is to charge each consumer the very highest price that makes buying the product more enjoyable than keeping the cash. That means a world in which we’re almost, but not quite, indifferent to all our purchases rather than overjoyed with them.
(Note: this pricing strategy only works in markets that are not competitive. People with leaky pipes might get $1,000 of value from a wrench that can fix the problem but wrenchmakers will never charge that much because competitors can sell identical wrenches for less. If you want to see whatever show the Met is staging, you cannot see an identical show staged by a competitor.)