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Re: Secret pricing (RE: Response from Ted Bergstrom to Ann Okerson)

Long live confidentiality agreements and discriminatory pricing.  It
sounds horrible, but it makes for a better world.
Why do these two concepts (discriminatory pricing and confidentiality
agreements) have to go hand in hand? Intelligent people can understand
the reality of differing markets that require different pricing models. A publisher need only have a clear, fair model in place that reflects
their various markets and the models employed in those markets. Confidentiality agreements, in my experience, aren't a mechanism to
facilitate 'discriminatory pricing' in the manner you describe.


At 07:26 PM 11/13/2005, you wrote:
Discriminatory pricing is a net positive for producers and consumers
alike, despite the emotionally laden term.  It would be smarter to call it
progressive pricing, in the political sense of progressive, but that would
earn catcalls, too.

Here is an example (rendered hypothetical) that came up in a recent
project I was working on in the area of college textbooks.  A textbook
publisher spends $1 million to develop a textbook.  The estimated market
is for 100,000 copies, of which three-fourths are in the U.S.  The
publisher could amortize all the development costs across all the copies
(that is, $10/copy), but since the copies sold outside the U.S. are
likely to go into weaker economies, the decision is made to amortize the
development costs over domestic sales only. Thus the U.S. copies have a
plant or development cost of roughly $13/copy, whereas the copies shipped
outside the U.S. have an imputed plant cost of $0.

The different plant costs are reflected in the prices--discriminatory
pricing:  more in the U.S., less in China.  The text sells for (say) $100
in the U.S., $50 in China.  But then, using the Internet and the
attributes of a global economy, the copies in China are imported back
into the U.S. and sold for $75.  This is actually going on right now at
UCSD (among other places).  A friend's kid, who is is an undergraduate
there, set the whole thing up and is likely to pay for his tuition this
way. This is arbitrage marketing.

So what will happen?  The U.S. publisher will stop putting lower prices
on the export edition in order to maintain margins at home.  Who wins?
Nobody.  The Chinese can't afford the book, and the U.S. publisher
effectively has lost a market.

Long live confidentiality agreements and discriminatory pricing.  It
sounds horrible, but it makes for a better world.

Joe Esposito