Price discrimination at Starbucks

Tim Harford at Slate: Starbucks Economics - Solving the mystery of the elusive "short" cappuccino

This secret cappuccino is cheaper, too—at my local Starbucks, $2.35 instead of $2.65. But why does this cheaper, better drink—along with its sisters, the short latte and the short coffee—languish unadvertised? The official line from Starbucks is that there is no room on the menu board, although this doesn't explain why the short cappuccino is also unmentioned on the comprehensive Starbucks Web site, nor why the baristas will serve you in a whisper rather than the usual practice of singing your order to the heavens.

Economics has the answer: This is the Starbucks way of sidestepping a painful dilemma over how high to set prices. Price too low and the margins disappear; too high and the customers do. Any business that is able to charge one price to price-sensitive customers and a higher price to the rest will avoid some of that awkward trade-off.

Technorati Tags: economics, starbucks, slate, tim harford, price discrimination, cappucino

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