Living Economics

Make Me an Offer
Brian Whaley*
A salesman on commission has an incentive to practice perfect price discrimination.

During high school, my uncle owned a clothing store in the mall. I worked for him doing everything from selling to stocking. After about 4 or 5 years he closed the store permanently. He put all of the store fixtures and equipment into storage and began to sell it. There was a large selection from clothes hangers to surveillance cameras.

After a while, he offered me a job selling the equipment on commission. He worked out 3 different price ranges for each piece of equipment. I would receive 32% if I sold it in the highest price range, 20% in the next one down, and 10% for the last bracket. If I had to go below the last bracket, he wanted me to still sell but I would receive 0% of the sale. I chose to become a price discriminator because charging every buyer his/her reservation price would bring me a higher commission.

To be more efficient, I did not put sale prices on the items, but I would let the buyer know what they were worth if he purchased them new. This gave the buyer the feeling they were getting a good deal, which they were. I would let them offer me a price first, to which I would then present a counter offer that was higher. The customer would raise their original offer a little higher, but still lower than mine. I dropped my counter offer down a little bit more, to which the person would offer a final price and say they cannot go any higher.

This is the point at which I would make the sale and charge the buyer close to his reservation price, leaving him little consumer surplus. But the closer I could get to the buyers' reservation prices, the higher my commission would be given the sliding commission scale. Being a price discriminator in this instance was more profitable than being a price searcher, because by lowering the price of one item, I would not necessarily have to lower the price of any other item.

Note:
  1. *Brian Whaley is an undergraduate at the University of Memphis.
  2. *Brian Whaley is an undergraduate at the University of Memphis.
Access Tools
• Advanced Search
• Browse Micro
Comparative advantage (14) Competitive strategy (27) Costs and opportunities (53) Entrepreneurship (3) Externality (29) Free Market Solutions (17) Free Ridership (3) Game Theory (22) Incentives (13) Income Distribution (25) Information (20) Labor Market (24) Marginal optimization (33) Market Demand (17) Market Entry (9) Market Exit (2) Market Intervention (12) Market Structure (29) Market supply (4) Material Flow (2) Miscellaneous (3) Price Discrimination (17) Pricing Strategy (47) Profit maximization (48) Property Rights (43) Regulation (16) Rent Seeking (2) Risk Taking (12) Scarcity (10) Tastes & Preferences (31) Taxes (7) Technology (9) Type of goods (31) What Price Means (28)
• Browse Macro
Boom and Bust (9) Budget Balance (12) Comparative advantage (13) Economic Development (1) Economic Indicators (6) Fiscal Policy (12) Incentives (1) Income and output (25) Income Distribution (5) Labor Market (6) Money and Credit (20) Regulation (5) Rent Seeking (1) Saving (6) Taxes (4) Technology (1) Trade and Foreign Exchange (30)
• Glossary
List All
Search

• Microeconomics Lectures • Macroeconomics Lectures • Economics Cartoons
Instructor
• Instructor Log in • Sample TOC • Video Tour
Student
• Student Log in
Close
Instructor Log in

Class
Close
Student Log in


Open Menu
Term
Definition