A Question of Pricing

By Anjum Altaf

Here is a question of pricing for you to consider.

Imagine the following scenario:

You are getting ready to travel from Lahore to Islamabad when by chance X stops by at your house. X is also making the same journey driving his own car. X offers to give you a ride and you accept.

Consider X to be one of the following in different versions of this encounter:

1. Your student
2. Your good friend
3. Your brother-in-law with whom you are on speaking terms
4. A distant relative
5. A colleague at work
6. A neighbor whom you know but are not close to
7. A stranger who stopped at your house by mistake

If you had traveled on your own as planned, the trip would have cost you Rs. 2,000.

For every case of X (from 1 to 7) answer the following questions. You can combine the categories of X who, in your opinion would give or receive the same answer.

QUESTION 1: How many Rupees would X expect for giving you the ride?

QUESTION 2: How many Rupees would X ask for giving you the ride?

QUESTION 3: How many Rupees should you offer X for the ride?

QUESTION 4: How many Rupees would you offer X for the ride?

In each case consider two versions:

  1. You and X are Pakistanis in Lahore and the cost to you of the trip to Islamabad is Rs. 2,000.
  2. You and X are Americans in Washington, DC and the trip is from DC to New York City with a cost to you of $200.

For each case and each version, state what you consider would be the appropriate ask and offer prices from the following perspectives:

1. Social norms and conventions
2. Moral norms and conventions
3. Legal norms and conventions
4. Considerations of fairness and equity
5. Considerations of standard economic theory

Organize your answer in the following tabular form:

Consideration Identity of X (Pakistan) Identity of X (USA)
1 2 3 4 5 6 7 1 2 3 4 5 6 7
1. Social
2. Moral
3. Legal
4. Fairness
5. Economic

For each cell enter your best answer as the four-tuple (K1, K2, L1, L2) where:

K1 represents what you think X should expect of you.
K2 represents what you think X would ask of you.
L1 represents what you think you should offer X.
L2 represents what you think you would offer X.

You can indicate Not Applicable wherever you think appropriate.

After considering all five dimensions (Social, Moral, etc.) state what you believe would be the actual or most likely transaction/exchange between you and X, i.e., how many Rupees would you give X for the trip (convert shared expenses into Rupee equivalent). This will be a set of 14 numbers – 7 for each identity of X in Pakistan and 7 for each identity of X in USA.

Write a paragraph explaining the perspective and reasoning that has influenced your answers.

Write a paragraph stating the conclusions you have reached after completing this exercise.

How to Submit Answers in the Comments Section

Submit your answers in the comments section of the blog.

The table is intended to help your thinking. You may choose not to enter it as part of your answer if you feel the other answers are sufficient to describe the logic of your thinking.

If you do wish to enter the table and are unable to post it in the comments section, use the following longer format in which you will be entering each row separately:

Social: Enter the 14 four-tuples in sequence from the first row of the above table.
Moral: Enter the 14 four-tuples in sequence from the second row of the above table.
Legal: Enter the 14 four-tuples in sequence from the third row of the above table.
Fairness: Enter the 14 four-tuples in sequence from the fourth row of the above table.
Economic: Enter the 14 four-tuples in sequence from the fifth row of the above table.

Enter what you believe would be the most likely Rupee or Rupee equivalent amount you would give X for the trip in the following format:

Pakistan: (R1… R7)
USA: (R1… R7)

Where R1 is the amount when X = 1, R2 is the amount when X = 2, etc. There will be seven numbers in each row, one for each identity of X.

Enter the two paragraphs indicating your perspective and reasoning in thinking through this exercise and the conclusions you drew from it.

Feel free to ask any questions of clarification on the blog before finalizing your answers.

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