Tag Archives: psychology

“Everything is worth what someone will pay for it.”

30 Jan

I ran into a cool term the other day: hedonic pricing. Basically, it comes down to what the buyer thinks is important in making the purchase. They are willing to pay more if other factors are favorable, less is not. It’s market psychology!

It has been known for some time. The quote I used as my blog title comes from Publilus Syrus, a freed Roman slave who became famous for his pithy sayings that they were collected in a book written about 50 BCE. So… this has been with us for some time.

The best example of hedonic pricing is in real estate. If the house you want is closer to where you work, or has better schools, or is on a lake… you are more willing to pay more for a house, even if it has less amenities in the house itself.

This goes along with my own maxim, which is “You pay for convenience.” Say I go to my local convenience store where they serve breakfast sandwiches. There are two fast food places on the opposing corners, and I know that I can get a better breakfast sandwich (that I don’t have to microwave) by just going across the street. But if I’m in my car, do I really want to spend another five minutes to cross the intersection, get in line, make my order, wait, and then get out with my better sandwich? Or do I take what is right in front of me for the same price? External factors at work that have nothing to do with the product–it’s all location!

Antiques work off this concept exclusively. There’s several shows which are all about antique dealers going into other people’s garages and finding stuff that they’ve just been having rust or rot there. You pay them a little, they’re grateful, then the dealers turn around and sell that object for a whole lot more. Because to the original owner, it means nothing–but it might mean the world to someone else.

For example, there is an Avalon Hill board game called War and Peace, which was a simulation of the Napoleonic Wars. My brother and I played this as a kid and it got lost in the move. It was probably $20-30 new when we got it, but now (if you can find it), people will sell it for $200. Now this game means a lot to me, even if I can’t find anyone to ever play it with me, but it doesn’t mean letting go of $200. So the hedonic pricing for me means that “I’m willing to pay a lot, but a lot less than $200.”

I could keep going, but do you have a better example? What bits of ephemera that you would pay far more than the average buyer? Let me know in the comments below!

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