Willingness to Pay

Companies target poor people. Companies target rich people. In the end, we’re all targeted.

When Heathcliff Huxtable, played by Bill Cosby, donned a modest outfit on his trip to the car dealer, he was attempting to come off as a frugal working class Joe (instead of the wealthy doctor that he was). It may have all been in vain though – he would have been better off sending a white friend to negotiate, regardless of his attire.

Sometimes, retailers do not equate wealth with willingness to pay. Another way of looking at it is that the perceived intelligence/power/respectability of the consumer can affect a retailer’s willingness to exploit/overcharge. A study published in the American Economic Review in 1995 revealed that when using the same scripted bargaining tactics at car dealerships, White men were quoted significantly lower prices than women (of either race) or Black men.

Also, Black and Latino home buyers are more likely to be quoted higher rates and sub-prime loans than Whites of equal economic standing. The logic is that because minorities are considered to be poorer (and plain ole blunt racism), they have fewer options, and are thus easier to exploit (a more nuanced, indirect racism). Such practices are, however, very illegal.

It seems companies are having a hard time figuring out who to charge more. My previous post suggests that companies want to charge wealthy people more because they have more money and willingness to spend. Today’s examples suggest that companies want to charge poor people more because they have fewer options, and therefore, more willingness to pay. Perhaps market logic changes depending on what consumer base or industry is in question. Conclusion? Companies are trying to screw you over, no matter whether you’re rich or poor.

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One thought on “Willingness to Pay

  1. Interesting observation. But we see that is many ways already don’t way. The people who are rich, have an easier time getting richer since they access to so many resources. And more negotiating power. While those who are poor seem to just keep getting into a bigger rut all the time. And such practices from the merchants definitely does not help.

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