Posts Tagged ‘Vending’

Suboptimal Vending

May 2, 2008

Kevin Hurley ponders Japanese vending machines:

As an American who tends to think in terms of monetary value when I first saw this machine I was a little confused and amused. If you look closely at the small can of CC Lemon you will see that it is 120 Yen, if you look at the large can of CC Lemon you will see that it is 120 Yen. The same price! The Mountain Dew and Pepsi follow the same fashion. I pondered why this was and got a simple explanation in a story from one of the books I have. Japanese tend to think in terms of efficiency, so, even if the colas are priced the same they will purchase the drink that they are able to consume, not the one that is a better monetary value. That is the price we pay.

That explanation doesn’t seem right…

Imagine a tiny Japanese Salary-man who is only thirsty enough for a small can of Coke-a-Cora. He buys the little can for 120 yen, and enjoys it completely–ichiban!

The next customer is a large scruffy foreigner. This gaijin is thirsty enough to justify a large can. If the small and large can are the same price, he will buy the large can.

But what if the large can is only slightly more expensive? We can reasonably assume that the large thirsty foreigner will still buy the large can if it is 121 yen instead of 120. In fact, since the extra soda has some value to him, there must be some price greater than the price of the small can and less than the price of two small cans up to which he will agree to buy the large can.

Of course, the price hike might cause some customers to buy the smaller can when they would have bought the larger can otherwise, but from the Cola company’s point of view this is a good thing. Since the large can must cost more to make and fill, the company will take in the same revenue but have lower costs.

You might say that the price hike will might drive the hippy to choose Pepsi instead of Coke, but then why are the small cans so expensive to begin with? Unless Pepsi and Coke are in collusion, either Pepsi or Coke could lower the price of the small can slightly and gain a whole bunch more customers. Since the small can must cost less to produce, this must be possible.

In short, it doesn’t make sense to keep the prices the same. The larger can should be at least a tiny bit more expensive than the smaller can. Why has Japan’s economy been in the doldrums since, well, my elementary school graduation? Look no further than your nearest vending machine.