Online auction sites' 'Buy now' option as price discrimination

If you've ever used an online auction site like Trade Me or EBay (and even if you haven't), you're probably familiar with the 'Buy now' option. For what is usually a higher price than the current bid, you can secure your purchase immediately, without having to wait for the whole auction to play out. You probably end up paying a higher price, but you get the goods immediately (or at least, more immediately than if you waited for the auction to finish).

This is an example of price discrimination, very similar to the example of Amazon's Super Saver Shipping that I blogged about earlier in the week. Here's what I said in that post:

In the case of Super Saver Shipping, consider two groups of consumers (impatient, and patient), and two options (Super Saver Shipping, and standard shipping). The first group of consumers is impatient, and they want their goods as soon as possible. This group can be said to have a short time horizon for their purchases. This short time horizon makes their demand for goods less elastic (less sensitive to price), so Amazon can charge this group a higher price. The second group of consumers is more patient, and they are willing to wait. This group can be said to have a longer time horizon for their purchases, which makes their demand for goods more elastic (more sensitive to price). So, Amazon should charge the second group a lower price.

The problem here is that Amazon doesn't know (for sure) which group any particular consumer belongs to. So, adjusting the price of the goods themselves isn't going to work. Instead, by offering different shipping options, the customers sort themselves into the impatient (less elastic demand) group and the patient (more elastic demand) group. Then, Amazon can charge the two groups different shipping rates, meaning that the impatient group pays more in total for the product than the patient group pays.

The principle with 'Buy now' is the same, except that instead of charging different shipping rates, 'Buy now' allows the seller to directly charge a higher price to the impatient buyers. Impatient buyers use 'Buy now' and pay the high price, while patient buyers wait for the auction to play out, and probably end up paying a lower price.

As I often say in my ECONS101 class, once you know what to look for, you realise that price discrimination is actually everywhere.