Thursday, September 20, 2012

I want to buy a limited edition of something!!!

Good afternoon everyone. Apologies for the late post but it was a busy morning. Today I would like to discuss the latest trend not only in fashion but also in pretty much every type of market out there. I am talking about the use of the word "limited" in front of the product or service offered.

You walk in a store and your eyes wonder towards a pair of jeans that is displayed in a strategic point in the building. You immediately notice that you will have to pay twice the normal price to buy this pair. The attendant is quick to let you know that this is a special pair of jeans because it is a "limited" edition piece. If you have the resources (money) you will probably think to yourself that this is too good of a deal to pass on and you proceed to buy the product.

If you do not have the money, however, you will be thinking about this special pair of jeans in the days to come, thinking how privileged you would be if you end up buying it. It is afterall a "limited" edition.

One quick look around reveals that many people are wearing the special edition piece you just bought. Suddenly, your "limited" edition pants, do not look so limited anymore. Jerry Seinfeld, the stand up comedian once told the following joke:

"What's the deal with limited edition cars? They are all around. Apparently they are "limited" to the number of cars they can produce."

So what IS the deal with limited editions? In most countries price discrimination is illegal. Price discrimination is the action of selling the same product at different prices in the same market. It is very profitable for companies to price discriminate because they can ensure that each income group (for simplicity rich and poor) would pay the maximum for the product thus increasing revenues. This is more profitable than just charging one uniform price for both groups.

Limited edition pieces are attractive to the rich income group, but in reality, in very few cases is the product substantially different than a "normal" edition.

So next time you come across a limited edition item you have to decide. In which group do you classsify yourself in?

Have a nice evening.


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