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Written by Wilfred Ling
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Sunday, 18 May 2008 |
A pair of rechargeable battery cost $13.15 for 2000mAh A pair of rechargeable battery cost $13.15 for 2500mAh A pair of rechargeable battery cost $13.15 for 2650mAh
The three set of rechargeable battery are identical in brand, all AA size and all of them NiMH. In fact, the packaging are all the same except that their capacities are not the same. I couldn’t figure why their pricing are identical. Common sense logic tells us that if all things are the same than the one with a higher capacity should cost the most. Based on market efficiency theory, everyone should buy the highest capacity one – assuming you needed the rechargeable battery in the first place. Obviously based on efficient market theory, nobody will buy the lowest capacity and eventually in order for the store to sell the lowest capacity – it has to lower the price; alternatively based on high demand for the highest capacity the store should increase the price for the highest capacity. Simple? Not really. I think the weird pricing has been there for sometime already and I believe many people bought the rechargeable battery based on external looks and did not look at the finer details and hence they did not realize they are not really identical. Last week I met a client for insurance planning. He was shocked to discover that a term insurance of $500K cost only $94 per month. He was quoted $50 per month for a term $100K by another agent (who could only represent one insurer). This means that the other insurer is nearly more than 2 times expensive that another one. This is a classical example of market inefficiency. If there is something so cheap – why the market does not normalize itself so that the price disparity should not be so wide? He was quoted $230/month for a wholelife by his agent. I showed him a whole life with similar parameters as his and my cost only $183/month. Another market inefficiency is taking place. In fact, I did some research and found that the most expensive wholelife was $263/month and the cheapest $183/month. The price disparity is more than 40%!! Amazing. Yet how come clients still buy expensive insurance policies? Food for thought. |
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