Monday, December 26, 2005

The law of many prices

David Brooks writes that we are Bobos in Paradise, no longer satisfied with a "cuppa joe" but at home with the complex Starbucks menu.

David Harford, The Undercover Economist, notes that "Starbucks doesn't have a way to identfy lavish customers perfectly, so it invites them to hang themselves with a choice of luxurious ropes." In other words, it's all about price discrimination. (Harford is most entertaining when he calls attention to all the ways that sellers pull it off.)

Which author is correct? Both, of course. Brooks emphasizes demand and Harford addresses supply. Leave the land of the Law of One Price behind and discover the really interesting stuff about how a complex economy allocates (and continuously reallocates) resources that facilitate evolving lifestyle choices.