@djc in microeconomics, there are two ways to get efficient production (in the sense that all net positive surplus transactions that can occur do), perfect competition (which allocates all surplus to the consumer) and perfect price discrimination (which allocates all surplus to the producer). 1/

@djc it’s an interesting thought experiment, how could you get a good society out of a perfect price discrimination world. but given how concentrated the allocation of producer surplus is under contemporary institutions, you’d need a lot of work and changes. you’d need really strong unions, for example, to prevent almost all economic surplus going to a narrow class of producers. 2/

@djc but it’s a bit of a hall of mirrors too — if we really posit perfect price discrimination, suppose surplus from one round of transactions goes all to a tiny number of producers. is it basically taken away in the next round, as whoever each producer buys dinner from extracts basically all they earned in exchange? it’s just very hard to see how an economy that seeks efficiency through perfect price-discrimination works out. 3/

@djc in practice, the theoretical efficiency of perfect price discrimination gets trotted out to justify pretty plainly exploitative forms of price discrimination, under which the discriminators maintain access to less discriminating markets which allow them to enjoy their outsize surplus. 4/

@djc coming back to the mango analogy, your intuition that it’s not an injustice even to subsidizers if all we’re doing is reducing the discrepancy of surplus in the transaction is understandable. but i still think it’s not great, for a couple of reasons. one is easy: we’ve posited thus far altruistic sliding scale pricing, the seller allocates all the fruits of charging higher prices to the rich into offering a subsidized price to the poor. 5/

@djc obviously, however, our price discriminating mango seller may not do this. she may allocate only half the gains from upcharging the risk to subsidizing the poor. the net effect of a world where she can price discrimination is an expansion of producer surplus laundered through some redistribution of consumer surplus. the pharma industry is the obvious example here, very high sticker prices made more tolerable by discount programs for the poor, extractive rates of profit. 6/

@djc that’s a pretty easy reason to be skeptical i think of equalizing consumer surplus through sliding scale pricing by surplus-retaining private providers. 7/

@djc a more subtle reason (that came up already in our thought experiment of a perfect price discrimination world) is economic calculation, including for the purposes of redistribution. in a world where lots of distributive equalization occurs via prices, it’s hard actually to know what rich and poor mean. 8/

@djc if we posit that prices adjust so we all afford the same consumption bundle, we end up with the same incentive problems as versions of socialism where “to each” has no relationship at all to efforts to produce. if we posit a much more mixed economy, where some prices impose egalitarian discrimination and others do not, we end up with disparities related to differences consumption requirements and preferences. mango lovers can never get ahead while banana lovers afford great pleasures. 9/

@djc how should we tax in this kind of world? can we even make claims about who is rich or poor based on income or wealth? what are my incentives to work, if getting to a higher paying job just means the stuff i enjoy today gets more expensive? maybe there are answers to all these kinds of questions, a worldview under which we can make sense of distributional outcomes despite pervasive price discrimination. but i don’t know or understand it. 10/

@djc at the opposite microeconomic pole, perfect competition where everyone faces the same prices, makes these questions at least analytically easy. people with lots of wealth an income enjoy lots greater surplus and can buy lots more stuff regardless of their idiosyncratic preferences. if we tax the rich to offer a UBI, the welfare effects will pretty closely match the change in financial flows. 11/

@djc a counter to this is that what may be analytically easy may be politically hard, precisely because effects are transparent the rich know what to resist. but the rich also know how to use price discrimination yo their advantage. i think social illegibility (“kludgeocracy”, “submerged state”) tends not in general towards egalitarian outcomes. so i think “first order” price discrimination (different prices for identical goods) is basically always bad. 12/

@djc it seems less bad for mangoes than for college or pharmaceuticals precisely because it’s evadable for mangoes, anyone can substitute away, have a papaya instead, so producers can neither extract a large surplus or do a lot of redistributing. but where serious first order price discrimination is achievable, it mostly does mischief. 13/

@djc none of this is a case, though, against “third degree price discrimination”, which goes through product definition. if the airline charges 3x for First Class, but all consumers can choose First Class or economy, there is no violence to economic calculation. everyone’s dollars still puchase the same goods at the same prices, there’s just a wider range of goods on offer. /fin