Thursday, August 18, 2016

Comparing Demand Shapes For Rake

Rake is a pretty wonderful Australian TV show.  What's the best way to determine the true demand for it?  The pragmatarian model or the DVD one-price-fits-all (OPFA) model?

One example of the pragmatarian model would be if Netflix subscribers could use their monthly fees to communicate their valuation of the content.   Many people would kinda like the show so they'd communicate this by allocating a few pennies to it.  Some people would like the show quite a bit so they'd communicate this by allocating a dollar or two to it.  A few people would love the show so they'd communicate this by allocating lots of dollars to it.

With the DVD OPFA model... people who suspect that they won't like the show very much don't buy it.  A few people would buy it and they'd experience buyers remorse.  Some people would buy it and be pretty happy.  Others would buy it and enjoy a decent amount of consumer surplus.  A few would buy it and love it and enjoy a large amount of consumer surplus.

Here's how I visualize the difference in the two demand shapes...




The value signal created by the pragmatarian model would be a lot more accurate and brighter than the value signal created by the DVD OPFA model.  Of course I have no idea what either of the actual demand shapes looks like.

No comments:

Post a Comment