You’re gouging on your prices
If you charge more than the rest
But it’s unfair competition
If you think you can charge less!
A second point that we would make,
To help avoid confusion:
Don’t try to charge the same amount
For that would be collusion.
(From The Incredible Bread Machine by R. W. Grant)
Under barter the fact that two participants exchange means that each party has different preferences for the commodities involved. However, the degree of preference may be different in each transaction; the same commodities could be exchanged by two other participants on entirely different terms because their relative preferences are different from those of the first two. Nobody would suggest that the terms of trade for one exchange should be forced upon those for another. That would clearly be wrong because it would reduce aggregate satisfaction.
The invention of money (by the private sector of course) opened up far greater trading facilities. You can sell your apples to somebody who grows pears even if what you really want is oranges. Also you have the option to wait and make a purchase later. Once again, there is no reason why one exchange should use the same terms of trade as another. The fact that money is a wonderful means of exchange does not alter the different relative preferences of different traders for the goods involved.
However, the more numerous are the participants and the commodities available, the more likely it becomes that the terms of trade, now fully in the form of money prices, will be replicated by various participants. The fact that more trades are carried out means that more people will know more about them, which again tends to produce common prices for each commodity (of the same quality, availability, and so on).
Nevertheless relative preferences will still be there, so that a common price will not produce common satisfactions. It is merely that the benefits of a universal price system, always changing but always up-to-date, overcome the drawbacks of different levels of satisfaction. On this latter point, and only this latter point, is the common price system a disadvantage.
What we see here is another form of “consumer surplus”. This, relatively well known to economists, usually refers to the fact that a consumer pays the same price for a second glass of wine as he did for the first, even though his needs/desires are already partly satisfied. Here, we are now recognising additionally that the first glass on its own means more to some than to others even though they pay the same price.
There are several market exceptions to this rule. For example, differential pricing is sometimes adopted in respect of old-age pensioners, in various areas such as ticket prices at sports events. This is not philanthropy; rather it is a business calculation or estimate that the total gate money will increase. (Public sector items such as free bus passes and cheaper winter fuel are neither philanthropic nor business calculations; those who make these decisions are using taxpayers’ money rather than their own.)
It seems to me that auctions, Dutch or otherwise, are an excellent example of catering to this type of consumer surplus. They are a genuine way of making more money for the auctioneers by tapping in to the fact that individual propensities to buy are different.
Yet by all modern standards of conduct according to state regulators, surely auctions must be an abomination. How on earth can greedy capitalists fix prices in this way, preying on those who are prepared to pay the most? What impertinence!
The truth is that state regulators are there to apply their type of justice, not ours – hence the quotation at the beginning of this submission. If they don’t get you in one way, they’ll get you in another.