01 August 2009

When 2+2 = 5

From "you suck at craigslist:" 2+2 = 5. People selling things on craigslist who want \$x for one of some item and more than \$2x for two.

I'm pretty sure I once saw somebody selling T-shirts on the boardwalk in Atlantic City for "\$3, 3 for \$10." Or it might have been "\$4, 2 for \$10" or "\$2, 4 for \$10". In any case, it didn't make sense.

I'm sure there are cases where this sort of pricing structure actually makes sense, but I can't think of anybody. (I also wouldn't be surprised to learn that economists have a name for it.) Anyone want to try?

Joe said...

A less extreme example I saw in my college bookstore:
1 for \$9.95
3 for \$29.95

I'll keep my dime, thanks. :)

Chris said...

One obvious example is sets of items that are no longer in production.

A set of six antique dinner plates is likely to cost more than six times as much as an odd plate.

thecooper said...

That craigslist ad makes sense to me. For a collector, the utility of a matched set is greater than twice the utility of having one part of the set.

It's different from the t-shirt situation, where the person buying three t-shirts is really just buying three of the same thing; for a collector's item, buying the set is *not* merely buying two or three or ten of the same thing.

There are also situations in which the seller wants to discourage volume purchasing. A grocer or a bar, for example, relies a lot on repeat customers. If someone comes in and buys up all your apples or all your beer at once, you might lose the future business of the next guy coming in who just wants one beer or one apple. So to maintain your good reputation of always having what the customer wants in stock, you might come up with volume disincentives.

xtoph3r said...

Echoing thecooper, many stores advertise "loss leaders", items offered below cost to entice buyers into the store. For example, soft drinks and beer are often sold at deeply discounted prices with the disclaimer, "limit one per customer." Additional units are sold at the standard price, which fits this model exactly.

Anonymous said...

The positive correlation of price and demand is quite common: on any asset exchange, stock, currency or whatever, buying something pushes its price upward. The supply-demand curves from economics 101 show the same relationship. It's only when other factors come into play, such as cost of carrying inventory, that producers get an incentive to offer volume discounts.

D said...

McDonald's chicken McNuggets are priced this way. 4 for \$1.00 but the prices for 6 and twenty are higher per nugget.

jkwiens said...

In economics, there is something called the Decoy Effect. This could explain the price structure. If you want to encourage people to buy only one item, this would do the trick. I don't know why you would want to do this, but I thought I would throw the idea out there.

Mike said...

As an after-school fundraiser for my football team, we used to buy whole pizzas and resell the slices at a profit. Our defensive coach, a very clever guy, came up with the spiel:

"a buck-fifty a slice, three for five dollars."

For us, the joke was on the kids who handed over the \$5. For him, I suspect it was that and a bit of gallows humor from someone who works at a "good" public school.

Luca said...

When I got my iPhone, the unlimited plan was \$99.99 a month. The "family" unlimited plan for two phones was \$199.99.

Anonymous said...

Don't these pizza places do it all the time. Large Speciality pizza for 12.99 and a medium for 15.99!

I. J. Kennedy said...

The worst examples come from the airlines:

round-trip: \$400
one-way: \$550

david said...

I guess that if you were able to buy things like these one by one and to sell then by packs of two, making money from air, then the term could be arbitrage.

I'm not an economist (vade retro, stock markets!), but I did study one subject about economic maths, and it was a quite recurrent term.

Paul Soldera said...

It's called taking advantage of people who can't do simple math. The entire recent economic collapse was a result of the same thing in the mortgage market :)

dan said...

I remember reading a story a long time ago about overintelligent murderous ten year olds.

They pointed out that if you have the following price structure: 1 for 12, 2 for 23, then you're losing a penny when people buy two. If you then CHANGE the structure to 1 for 12, 2 for 25, and someone buys one widget twice, you're actually UP a penny from the 23 you would have gotten originally.

The flaw in the logic is obvious, of course, but it's an interesting argument