Price Discrimination via Product Design

Here are some nice examples from the Wall Street Journal of how firms alter products, sometimes making them worse at some expense, in order to increase the potential for price discrimination.

To save money, Chris Caine, a resident of Fiji, always orders
computers made by Apple
Inc. from the U.S., where they are significantly cheaper. Recently,
he purchased Apple’s newest desktop, the iMac G5.

Soon after the computer arrived from the U.S. he plugged it in.
There was "a big bang, like an explosion, and white smoke out of the speaker
grilles," he says. The machine then died.

Mr. Caine didn’t have a defective unit. It turns out that, unlike
the 17 other Apple computers that he had purchased in recent years for his
DVD-rental business, the new iMac G5s sold in the U.S. are designed to work only
with the electric power systems in the U.S. and Japan…The iMac G5s Apple sells everywhere except the U.S. and Japan are dual voltage,
meaning they can cope with the electrical systems in Fiji, Europe and most of
Asia, as well as those in Japan and the U.S….

H-P has quietly begun implementing "region coding" for its highly lucrative
print cartridges for some of its newest printers sold in Europe. Try putting a
printer cartridge bought in the U.S. into a new H-P printer configured to use
cartridges purchased in Europe and it won’t work. Software in the printer
determines the origin of the ink cartridge and whether it will accept it.


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