Carragee Consulting

Tim Smith of Wiglaf Pricing and Mark Stiving of Pragmatic Pricing have both  written blog posts about what is and isn’t Pricing Power, countering those who define Pricing Power as simply, inelastic demand, the ability to raise price without a commensurate reduction in volume.  As always, I’m interested and impressed by the thought leaders in the Pricing community as they expound on seemingly familiar concepts.  On a personal level I find that there is not enough overlap in our analysis of the strategy and tactics of pricing with the regulatory landscape and perception.

I’d like to read a consolidated analysis of Pricing Gouging, Extortion, and Predatory Pricing.  They all fall under the category of “you-know-it-when-you-see-it” but is there a nice Venn diagram depicting how they are related to each other and the concept of Pricing Power in general?

Legally and ethically, does it matter if pricing discrimination is statistically derived from observed behavior or if its implemented because its intuitively likely to succeed?  A few years back I met the Director of Pricing for Match.com, an internet dating site.  I remember asking him what types of legal constraints they ran up against in running pricing promotions since what could be more consequential or personal than finding a life partner?

The most incredible example of extortionary pricing I’ve ever heard of was in Zimbabwe where women were charged $5 (3.3 percent of average income per capita) per scream during delivery of a baby.  The Atlantic describes a woman in labor as potentially “the least price-sensitive consumer category on earth“.  And while this story is shocking to the point of absurdity, its not only in authoritarian, economically depressed countries where it happens.  The medical field in the US is rife with astonishing examples too.

One story which has received a lot of attention, especially among supporters of Single Payer Health Care is about Pharma Bro, Martin Shrekli.  The cautionary tale of a greedy CEO, whose company bought a drug patent with the intention of hiking prices on life saving medications under the assumption that our insurance will simply be forced to pick up the tab.   Valeant Pharmaceuticals is not alone among price gouging drug companies, but Shrekli is uniquely smug and unlikable.

Beyond Pharmaceuticals, this month Toyota was  fined ~$22M for systematically charging minorities higher interest rates for car loans compared with non-hispanic white buyers with the same credit scores.  Another study was released showing that women pay more for consumer products “from cradle to cane” and the media picked up the trend now commonly referring to the price differential as the “Pink Tax” as though it were a mandated surcharge rather than a form of price segmentation.

On a philosophical level, I wonder if pricing of necessities is Economics with a strong underpinning of Politics whereas pricing of non-essential goods and services is Business.  I know that post-Enron Business Ethics courses got a boost in MBA programs, but many practitioners are beyond their formal education years.  I’m a big fan of the “say it out loud” test of clarity and morality, but that’s not a systematic methodology for pricing.

What is your answer to Warren Buffet’s question: “if a firm can raise prices without losing business why don’t they?”

Update: Another Tim Smith post which directly addresses this topic and underscores the difference between economic theory and the impact of regulation.  As always, well thought out and a great read: https://www.linkedin.com/pulse/generic-drug-pricing-practices-under-scrutiny-tim-j-smith?trk=hb_ntf_MEGAPHONE_ARTICLE_POST