A question about economics

[Orrex]

So my local grocery store chain has a video/DVD section from which you can rent any title for seven days. New releases are $3.99, and older titles are $1.99.

The price of the new releases surprised me, and I asked about it.

"We have to charge more because of NetFlix."

:wtf:

"We were losing customers to NetFlix, so we had to raise prices to keep our rental service in business."

In essence, if I understand correctly, the customers who didn't abandon them are being charged more, in order to stay competitive.

Isn't that like when the coach throws an unholy tantrum about the kids who didn't show up for practice?

[bicentennial_baby]

1. Price Discrimination

Charging two different groups different prices, b/c their demands have differing elasticities. Someone who wants a new release probably doesn't want to wait for it come in the mail, and are thus more likely to pay the higher price.

[Orrex]

2. Makes sense to a point, I think

I can see charging four bucks for the first week or two, but why not scale it back thereafter? If the argument is that a cheaper service has stolen the business, it seems IMO counterintuitive to raise prices in response.

[Gormy Cuss]

3. Captive audience.

They're counting on customer loyalty and a resistance by some customers to dealing with a faceless vendor like NetFlix. If they are right, then the higher price for new releases and the lower price for older titles will feel right to enough customers to make the business profitable.