The Electric Commentary

Tuesday, November 08, 2005

What I'm Reading: The Undercover Economist, by Tim Harford.

The Undercover Economist is, so far, my favorite book of the year. Here's an excerpt:

The most surprising examples of all comes from the world of computers. For instance, IBM's "Laser Writer E," a low-end laser printer, turned out to be exactly the same piece of equipment as their high-end "LaserWriter" --except that there was an additional chip in the cheaper version to slow it down. The most effective way for IBM to price-target their printers was to design and mass-produce a single printer, then sell it at two prices. But of course to get anyone to buy the expensive printer they had to slow down the cheap one. It seems wasteful, but presumably it was cheaper for IBM to do this than design and manufacture two completely different printers. Intel, the chip manufacturer, played a similar game by selling two very similar processing chips at different prices. In this case, the inferior chip was actually more expensive to produce: it was made by taking the superior chip and doing extra work to disable one of its features.


To this point I prefer it to the somewhat similar Freakonomics, as Harford is a better storyteller than Steves Levitt and Dubner, and the book really flows. I haven't had a real page-turner in quite a while, but I have little doubt that I'll have it finished off by tomorrow.

Highly recommended.

4 Comments:

  • Sounds interesting. People get really angry when they hear things like that, but if such practices were outlawed I guess the thinking is that the most likely effect would be that only the expensive printer would be manufactured and sold at only the higher price.

    If memory serves, a classic example was the difference between the first and second class train tickets in France one hundred or more years ago. Although it would have only cost a few Francs to add a roof and nicer seats to the second class area, if they did, then nobody would pay to ride first class.

    By Anonymous Phil, at 5:26 PM  

  • He actually mentions that as well.

    By Blogger PaulNoonan, at 7:08 PM  

  • You would think that if they just had the fast low price printer that they would have a much higher share of that market. Even with a slight price increase over competitors. I guess not.

    Intel already dominates their market, so I can see their strategy.

    By Anonymous Scott, at 1:20 PM  

  • Microsoft actually did this with software, IIRC. Apparently, the difference between the Windows NT 4.0 Server and Desktop editions was a registry setting that limited the number of clients that could connect to the Desktop edition, preventing users for using it on a server.

    By Blogger dhodge, at 3:08 PM  

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