Radio Flyer sells a red scooter for boys and a pink scooter for girls. Both feature plastic handlebars, three wheels and a foot brake. Both weigh about five pounds.
The only significant difference is the price, a new report reveals. Target listed one for $24.99 and the other for $49.99.
The scooters' price gap isn't an anomaly. The New York City Department of Consumer Affairs compared nearly 800 products with female and male versions — meaning they were practically identical except for the gender-specific packaging — and uncovered a persistent surcharge for one of the sexes. Controlling for quality, items marketed to girls and women cost an average 7 percent more than similar products aimed at boys and men.When a seller offers a product (or service) for different prices to different customers (or groups of customers), and those price differences don't relate to differences in cost, we refer to that as price discrimination. In order for price discrimination to work, sellers need to meet three conditions:
- Different groups of customers (a group could be made up of one individual) who have different price elasticities of demand (different sensitivity to price changes);
- You need to be able to deduce which customers belong to which groups (so that they get charged the correct price); and
- No transfers between the groups (since you don't want the low-price group re-selling to the high-price group).
What about the case of boys' scooters and girls' scooters? The sellers must believe that buyers of scooters for boys have more elastic demand for scooters than buyers of scooters for girls. How could that be? In my experience (having both a son and a daughter), if your child really wants a scooter you probably want to shop around for the best option. If you do so, you quickly realise that there are lots of scooter options targeted at boys, but far fewer options targeted at girls. This is of course related to the relative sizes of the markets for boys' scooters and girls' scooters. The larger market size means that more firms want to sell scooters for boys than for girls (as well as more variety of scooters for boys than for girls), which has a flow-on impact on pricing.
Because there are more options for boys' scooters, we say that there are more substitutes. Customers have more choice, and that makes demand relatively more elastic, so firms find it harder to raise prices (because customers would simply buy a boys' scooter from a different seller instead). With girls' scooters, there are fewer options (fewer substitutes), so firms find it easier to raise prices (or rather, to not lower them to the same price as scooters for boys).
This isn't just happening in the market for scooters. Paquette goes on to note other products where women pay more, including razor cartridges, haircuts, and clothing. You can make elasticity-related arguments for those differences in pricing too, though not all are related to the number of available substitutes. As Tim Harford notes:
This female insensitivity to price — if it really exists — might be driven by all kinds of things. Perhaps women tend to be busier and have less time to shop around. Or perhaps they care more about quality when it comes to deodorant or shampoo, whereas men just want something cheap.
Uri Gneezy and John List, in their book book "The Why Axis: Hidden Motives and the Undiscovered Economics of Everyday Life", argue that this type of discrimination is unfair, and for some products (like the scooter) it is hard to see the fairness in the pricing. However, as I have argued, for many products it may be more unfair not to have price discrimination. Either way, this is a more common pricing practice than many people realise. The next time you want to buy a scooter for your daughter, maybe you should buy the red one.