Maximizing Profit

CBC radio news is usually quite impartial but when it comes to the issue of goods costing more in Canada than they do in the United States, especially when the dollar is almost at parity, they go full out populist. The more interesting thing though is that it seems that almost everyone voices that they find it fundamentally unfair that they have to pay more for goods than they would if they lived south of the border. I’m not sure how good the “random sampling” is when it comes to finding clips of people willing to speak into the microphone, but people speak of there being a lack of “fairness” and even that the government should do something about the issue.

The fact that this flies in the face of a free market economy where companies are free to profit maximize anyway they are able to is forgotten. Does this mean that people in general do not believe in letting companies price set? Do they believe that there is some “fair price” that companies should adhere to? Perhaps this is true and stores that persist in pricing items higher than they are deemed worthy are labeled and not bought at again (of course the difficulty here is knowing how much of this lack of consumers to a particular store is based on high prices and those more specifically on an issue of fairness, perhaps a study could be done where a store that has some things priced like other stores but others that are more expensive could be clever enough to figure this out).

In economic theory it’s called Price Discrimination and it is the act of a company pricing the same good or service differently to different groups of people for the purpose of maximizing profit. The term comes across as something bad but it’s very active in pricing that many would find normal such as letting older people and students pay less because they have less money whereas working age people have more and are then asked to pay more. It’s also used with coupons that need to be cut out- if the person can’t be bothered to cut coupons out then they are more than likely willing to pay a bit more so they get charged more. The companies that price differently in one country than another are doing exactly the same thing, the fact that it is found to be unfair probably says more about people’s attitude towards capitalism than anything else.

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