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2 prices, 2 sizes, same bike???(26 posts)

2 prices, 2 sizes, same bike???jtkirk15
May 31, 2002 4:23 AM
Situation: Shop has a few '01 Jamis Quests. My size is 55cm. They are asking $1k for a 59cm and $1100 for a 55 cm. Same specs. Read on--

Below is an email I got back from the shop. I visited the store the day before but didn't notice the price difference then. First thing to note is that they have 2 '01 55cm bikes (Jamis Quest) left in their warehouse. Secondly, why does it matter what size it is and how long the store has had the bike. To the customer they are the same (both '01 models)! What do you think about that?

"The 59cm is a 01 closeout. The 01 55cm price is for a special order(presuming it is still available). Sometimes we mark down different sizes to different prices, depending on how long we have had them. The 59 is the only 2001 quest we have left, sorry. The 2002 model (55cm) is $1199. Although it is possible that a 01 55cm is available, it is very unlikely. If it was, wewould offer it for $1100. I can check on it if you are interested."
The price is set by the seller and buyer,TJeanloz
May 31, 2002 4:45 AM
Unfortunately, prices aren't entirely set by demand. We don't know where you got the information that they have two left in "their" warehouse (Jamis' warehouse, or the shop's warehouse?). But the shop makes it clear that they don't have one ("The 59 is the only 2001 quest we have left"). So they may be taking a loss on the 59, just to get it out the door and generate some cash for their obsolete inventory. And even if they have the 55, there will be demand for the 55 this summer (53-57 are the most popular sizes) so they KNOW that they can sell it to someone else for $1100. In the shops' eyes, they aren't the same bike, and don't have the same value, so the price is different.
The price is set by the seller and buyer,jtkirk15
May 31, 2002 4:55 AM
I thought I said I visited the store the day before. The employee I spoke with at the time walked to the warehouse (the shop's warehouse) and confirmed that he had 2 55cm in boxes. He's having one built up for me. I understand your point, and they "can" do it, but it seems like an extreme form of price discrimination. If this were common practice, then all bikes would have different prices based on size, availability, color, etc. Maybe they are quoting $1100 because they think they have to order it. If they realize it's in the warehouse just sitting there they might be willing to let it go for $1k. Now if only they'd get back to me.
They often do,TJeanloz
May 31, 2002 5:17 AM
It happens quite frequently that bikes that are higher in demand cost more. We had a situation a few years ago where one bike came in two colors, one of which was hideous, and nobody would buy, the other was gorgeous, sold out and impossible to keep in stock. So we had a sale on the color that wasn't selling, and charged full price for the one that we couldn't keep in stock.

Bikes are priced based on availability (think "last year's model")- they sell at a discount, not because they're any different, just because of availability. Or the shops that charged more for the last "Massachusetts-built" Merlins, implying that they were somehow better or rarer.

The price is the price, there isn't a 'fair' or 'unfair' price, just what you are willing to pay and what you aren't willing to pay.
I understand...jtkirk15
May 31, 2002 5:49 AM
that they can do that, but in this instance I think it's a bit overkill. An example I think of is this: a clothing store has some short sleeve t shirts for sale. They are different colors and different styles. They sell a lot of them and soon it's fall and long sleeve shirts come in. By now they have a couple Large shirts left, a few more mediums and several smalls. It's now a different season so the store discounts the tshirts to move volume and make room for fall clothes. When they discount the shirts, they don't say ok, smalls are $5, mediums are $7 and larges are $9. They make them all the same price. That's why when I stumble on a large at the store for a discounted price of $7 I'm happy. I've never seen this before in other areas of business. Is this unque to the bicycling industry? Perhaps so.
A funny story,TJeanloz
May 31, 2002 5:53 AM
There's a store downstairs from my office that sells all kinds of luggage, bags and sundry items, including umbrellas. It turns out that they charge 20% more for umbrellas when it's raining out. I was amused when I figured this out (though not too amused to pay 20% more...).
Its all elasticity of demand, right? (nm)pmf1
May 31, 2002 6:20 AM
Pretty much,!jtkirk15
May 31, 2002 6:35 AM
Most bike buyers have more money than me so they have higher elasticities of demand. Unfortunately in terms of a bike purchase my demand is inelastic, thus why I won't buy the bike for $1100. Someone will though, we all know that, and so does the shop!
Happens all the timeJekyll
May 31, 2002 6:12 AM
Having run a wholesaler before I can tell you that the "same" products sell at different prices dependent on size, color, availability etc. To a retailer, two different size bikes are really not the same product. They will treat every SKU as a different item. If there is greater demand for one size, color, etc then often times the price will be different.
Speaking of shirts - if you look around you'll find that XL's are almost never on sale and that Md and Sm are blown out every where. Since there is more demand for Xl T-Shirts this makes sense. Look in a closeout bin at a bike shop - plenty of shoes in sizes like 7 and 12 but very little in 9-10.
Cars are much like this as well. Different color cars will sell for different prices. If a particular color is more desirable it will fetch a higher price - this is especially true for used cars. For example: I just traded a 98 M3. I looked at prices at auctions (which is what determines what a dealer will give you for a trade). Black on black cars were consistently auctioned at higher prices than any other color combinations (which worked well for me :-).
In the end its called supply and demand. As T said, the most popular bike sizes seem to be in the 53 - 57cm range. 59 takes a pretty tall rider and reduces the size of the market for the dealer, reducing demand, reducing the price. May not be nice, but it is life.
Happens all the timejtkirk15
May 31, 2002 6:27 AM
OK, pretty good points but I think you missed the point. You never see XL shirts on sale because usually they sell out. It's at about that time that you see the super sales on clothes because they are stuck with Smalls and mediums. Being poor and not driving an M3, I often look for sales for clothes. I am ecstatic to find a Large for sale. You don't see a bin of racing shoes in 7 and 12 for $50 and another bin next to it with the same shoes except sizes 8-11 for $100. They have sales to move inventory. Usually the sale occurs when they have the tougher to sell shirts left.

As for cars, this misses the point completely. Although they are the same, one person's tastes may be different. When more people have a taste for black cars, the price goes up. However, this is in the control of the buyer. A buyer could very well buy a puke green M3 if he wanted to. I cannot buy the 59cm because it doesn't fit me. I have no choice! Taste is a key element in determining demand.

You were correct in the last paragraph. It is supply and demand, and the demand is greater for the average size. This is just a case that is very difficult to mimic. It's an unique dynamic created with bikes, where the margins are just enough that makes it worthwhile to advertise the $100 difference. The margins aren't good enough to do this with t-shirts.

I still don't like it! Damn Adam Smith and free trade!
Their email doesn't seem unreasonable.djg
May 31, 2002 6:04 AM
Whether the price on a 55 is a good one or not depends on what others are charging--call around. But discounting an '01 model in a less popular size 10% to help get it out the door (and cash in)...? I don't see the problem.
Their email doesn't seem unreasonable.jtkirk15
May 31, 2002 6:13 AM
Economically speaking it makes perfect sense. But I've just never encountered this exact scenario. I mean, either way it's discounted so either way I am saving money and should be happy. It's simple free trade/supply and demand. As long as the price is discounted I should be willing to purchase the bike. But there is just something doesn't feel right about blatant price discrimination based on size, something out of control of the person. Again, I'm impressed with the management of the shop in terms of business savvy, but I still don't like it, especially when I only want to spend $1k!!!
why use loaded terms like "discrimination"?Jekyll
May 31, 2002 6:20 AM
Its as though you are developing a victim complex over the fact that the bike you want is a hundred dollars more than the one you don't want. No one is discriminating towards you because you happen to want a bike in a popular size.
Is the bike shop supposed to mark up a bike that is harder to sell in line with a more popular one just keep from offending your sensibilities? Get over it.......
Economics 101jtkirk15
May 31, 2002 6:33 AM
I won't take offense to your charged comment "Get over it.." because you clearly have no experience in economic principles. Price discrimination is a term used to describe differences in price for the same product. It's not offensive, simply technical. Another example of price discrimination is the matinee price at the movies. For the exact same movie in the same theatre, if you go to a matinee it's about half-price. Why? Because people want to go at night and the theatres try to lure customers in during the day with lower prices. Nothing "wrong" with it. You also pay higher prices for a plane ticket the closer you get to the departing date. Next time you are on a plane ask those around you what they paid, you'll get a different answer every time. There are three types of price discrimination, but I won't get into that now. Again, there is nothing wrong with doing it by the company, I'm actually impressed. I just don't like it because it knocks the bike out of my range.
Economics 101Jekyll
May 31, 2002 6:56 AM
Don't know, managed to run a 120 million/year distribution business fairly well for not knowing anything about economic principles..... Someone must think I know something about the way buying and selling things works.
Also, the basic principle of price discrimination does not apply here. Price discrimination, in technical terms, assumes that products remains a constant while the sale price varies by age, income, race, etc. If you were quoted $1100 and a woman was quoted $1200 on the same 55cm that would provide a far clearer example. As the 55cm and 59cm are in essence NOT the same product to the bike shop "price discrimination" in classical terms does not seem to apply.
Items in inventory are only as valuable to the retailer as the final price they may fetch. Every day that a bike sits on the floor it costs the shop money. Moving a less desirable item off the floor or out of the back room at a discount makes economic sense (as you seem to realize). If you want the bike, buy it, you are expanding way too much time and energy on 10% price difference.
Economics 101TJeanloz
May 31, 2002 7:04 AM
Strictly by the book, neither examples are classic price discrimination, unless you argue that women are in a different market. True price discrimination is what Thomas Pink does with shirts- $125 per shirt in the US, ~$75 per shirt everywhere else in the world. Don't ask me how I know this.

What we have here is really closer to price diferentiation, but not exactly because the two products are not identical.

Price Discrimination -

Definition: When the same product is sold in different markets for different prices. A firm will only be able to price disciminate where there is separation between the markets. If there is any significant leakage between the markets the price discrimination will break down.

Price diferentiation-

Definition: When a business charges more than one price for identical products or services, e.g. off-peak electricity.

Definitions courtesy of the University of Bristol, School of Business and Economics.
Economics 101Jekyll
May 31, 2002 7:16 AM
Could be too many years out of school... Working with the following definition:
Practice of selling a commodity at different prices to different buyers, even though sales costs are the same for all the transactions. Buyers may be discriminated against on the basis of income, race, age, or geographic location. For price discrimination to succeed, other entrepreneurs must be unable to purchase goods at the lower price and resell them at a higher one.
You are probably correct on price differentiation rather than discrimination. The main thing here is still that the two different size bikes are not the same item in real world terms.
Now about those Thomas Pink shirts.........
Economics 101jtkirk15
May 31, 2002 7:31 AM
Your definition is good and correct, but when I graduated (last year with econ degree) we worked with a more detailed definition. Yours doesn't capture my examples of airplane tickets and the matinee movie. Again, there are three types of price discrimination (i.e. differing degrees).
Economics 101jtkirk15
May 31, 2002 7:25 AM
Since we have resorted to boasting I guess I should say that I managed to run a 121 million/year distribution business fairly well. Or did I, who knows? These damn anonymous message boards make it tough to know. Really all we are left with is the text and the principles herein. I won't say you know nothing about price discrimination, but it doesn't use the term discrimination based on the classical sense. If we want to use it your way, we would say that I am discriminated against based on my size. See my other examples if you are still unclear. The only way this isn't price discrimination is if the bike shop incurred a higher cost when it purchased the bike from the manufacturer. I doubt the manufacturer charged the LBS more for 55cm than a 59cm. If it did, then this is a non-issue.
Economics 101Jekyll
May 31, 2002 7:46 AM
I have no problem with verifying my professional experience. Its hardly boasting, rather a response to your assumption about my knowledge of economic principles.
Why is it so hard to swallow that the retailer has a vested interest in moving a slower selling bike at a lower price so that it could be replaced with a faster moving (thus less expensive to stock) item? Price discrimination (if you try to apply it here) does not take into account the fact that the 59 is probably a hole in his floor which he/she would be glad to replace with a 55 or something else which would provide him/her with a higher margin. Retailers have to turn their inventory to keep the doors open. Sometimes this forces reductions on slow moving items - these are technically known as "sales."
This will clear it up! New info.jtkirk15
May 31, 2002 7:58 AM
I see your point, but it is price discrimination (BTW- there is no law against this, it's perfectly acceptable). Your explanation applies brilliantly, even in the other cases I gave as examples.

Upon closer inspection of the website, updated 2 months ago, I found this out: the $1k price is fora 59cm that's instock. The $1100 applies to bikes sized 47, 51, 53, 55, and 57. These are under the heading "Closeout Special Order Deals." This explains the higher price. They can get these bikes from elsewhere but will charge the extra $100 to cover expenses and effort. It's interesting to note they have a price of $1200 for a 61cm special order. The kicker is that they have the 55cm in stock so it appears that if I have a discussion with them, they may charge me $1k for it since they don't have to special order it for me. Maybe because the records arent updated they are operating on an old price schedule. I'll definitely look into it. Given this new information, the price discrimination is non-existing, as long as they charge $1k for the bike when they understand it's in stock. If I had them special order it I would gladly pay the extra $100.

Does this clear it up? I think it made sense before, but makes more sense now.
$1bil./yr hot dog stand...dustin73
May 31, 2002 2:43 PM
2.7 current ratio

2.3 ROI

y'all wouldn't believe the dividends we paid out to preferred stock holders last year. whoo!
differences in price for the "same product"?elviento
May 31, 2002 8:46 AM
Clearly they are not exactly the same product, right? Otherwise you would have bought the 59 since it's the same as the 55 anyway.

If you take a look at pro team jerseys on Ebay, Size L often goes for $40, size M often $35, size S often $15, size XXL often have no bids. To me, they are not quite the SAME product.

"extreme form of price discrimination. If this were common practice, then all bikes would have different prices based on size, availability, color, etc. "

In fact this is exactly what happens. Huge/tiny sized bikes with crappy colors typically go for less.
differences in price for the "same product"?jtkirk15
May 31, 2002 9:19 AM
Again I agree with you. They arent the same in every facet. But size is something we have no control over. Your example about huge and tiny bikes works until you bring in color. Color = taste = demand. I wonder what would happen if the industry started having price differences for every model. Even 2002 bikes. Each size has different price. I think this problem is clarified in my other point below. Thanks for all the responses, this has been fun!
You can buy the 59cm to save the money...PdxMark
May 31, 2002 7:07 AM
but of course, that isn't much of a bargain, is it? Instead of saving $100 you'd be wasting $1000. Or you can just not buy the 55 cm or the 59 cm, that way you wouldn't be subjected to "unfair" pricing.
You can buy the 59cm to save the money...jtkirk15
May 31, 2002 7:28 AM
It's definitely not unfair, I just don't like it. My elasticity of demand doesn't allow me to pay more than $1k. If the bike is nice and it fits, I may squeeze the extra $100 out. We'll see. I just thought this would be an interesting topic for discussion.