Thanks, Jay. I’m glad you found my note useful.
I think that there’s a lot of very dumb rhetoric about “fair trade” and “fair pricing,” usually coming from people who want to tell others how to set their prices. I generally distrust the word “fair.” But there is an emotional side to pricing. Smart businesses want their customers to feel good about transactions, especially repeat-business propositions such as restaurants. That’s why bartenders give out the occasional free drink, restaurateurs sometimes send out a free appetizer or dessert, etc. And, all the management consultants and books notwithstanding, there’s a lot of gut in business; if a cafe proprietor in New Mexico thinks that a price feels right, or wants to know whether his customers think a price feels right, I don’t think that’s insignificant. Businessmen want to do the right thing, too, at least as often as anybody else.
It does get tricky, sometimes, e.g. the car-dealer who adds $1,000 to the price of everything so he can tell gullible buyers he’s giving them $1,000 off. I think the Internet has made pricing “fairer” in the sense that sellers cannot as often get away with charging above-market rates; there are a fair number of stores that will sell you a product at whatever the lowest price you can document is. It’s hard to say no when somebody’s showing you the same product at a better price on his phone. And for some products, especially big purchases, there aren’t really any surprises in pricing. You can configure a car online and know exactly what it’s going to cost.
On the other end of the spectrum from the New Mexico café owner, some clever people have figured out that if you make people pay an outrageous price for something, they’ll convince themselves it’s good. E.g., most Broadway shows, half of NYC’s fanciest restaurants, etc.
There is a story, possibly apocryphal, told about Gibson guitars, when the company cut its prices in response to Japanese competitors. (The Eighties! Remember when the Japanese were going to run the world?) Gibson’s quality, the story goes, did not change — the guitars were exactly the same, but they charged less for them. Contrary to supply-and-demand expectations, sales fell. Gibson later started jacking up its prices, and sales took off. Some things, you buy because they’re expensive, not in spite of the fact. The econ-nerd term is “Veblen good,” something that is valued because relatively few others can possess it, ownership of which communicates status. A $20 Timex tells great time and will last forever, but telling time is not what expensive watches are really there to do. I’ll bet that New Mexico restaurateur was a Timex kind of guy.