Price Skimming
Categories: Econ
Wahoo—it’s so fun riding down a nice, smooth roller coaster loop. That’s what price skimmers do.
Price skimming is when a company sells a product at a high initial price. Some people—people who pay for newness, especially—buy it. No prob for them. Then the company lowers the price just a little bit. Then more customers give in, and say "Okay, okay, I’m buying this." After some more time, the price gets lowered again. Well...at least once, but possibly multiple times.
Riding down the demand curve by lowering the price over time, a.k.a. price skimming, is a way to capture customers of multiple price-sensitivities. Of course, you risk having already-paid customers see the price drop lower and lower. They might be too wealthy to care...or they might feel a bit ripped off. Some companies let you take back the difference if it’s recent, and you notice and let ‘em know. It also risks cheapening the perception of your goods in the eyes of customers, depending on how low you go.
So...how low can you go?
