The Fruits of Civilization (33) Alternative Pricing

Alternative Pricing

The single most significant factor in profitable pricing is alternative cost: what a consumer might otherwise have to pay to obtain an equivalent. If the same good may be had from another source – that is, under competition – it is a buyer’s market, and prices are (hypothetically) competitive.

Similarly, if a substitute good is available, that too is an ersatz form of competition. But a substitute is not selfsame: the desired product may be favored to some degree, and so can command a price premium.

Reputation sometimes figures in a price premium. In the 1st decade of the 21st century, Apple Computer became the darling of touchscreen mobile phones. Even though roughly equivalent phones were available, the Apple iPhone commanded a reputation ransom.

If an equivalent ware cannot readily be found elsewhere, a seller looking to maximize profit will demand as high a price as he thinks will still sell the good. In early 15th-century Europe, a pocket of peppercorns would be worth a fortune, as the spice was a rarity with no substitute.