Dynamist Blog

What's the Product?

In my March NYT column, I discussed the price-measurement dilemmas created by subjective quality improvements like more aesthetic hotel design. Back in August 2003, I wrote a column on the increasing value of intangibles; I noted there that technocratic regulation (in this case, energy-oriented lighting rules) rarely recognize that consumers get real benefits from qualities that are hard to measure objectively--unless, of course, you accept the subjective evaluations captured by prices:

Prices capture the relative value people put on intangibles. The price system lets individuals make trade-offs among goods, without having to articulate a "good reason" for their preferences. It rewards value you cannot easily count.

Some critics find that wasteful. "Addiction to a strict and unremitting valuation of all things in terms of price and profit" leaves executives "unfit to appreciate those technological facts that can be formulated only in terms of tangible mechanical performance," Thorstein Veblen wrote in 1921 in "The Engineers and the Price System."

On a trip to the supermarket today, I came across a good example of how the "same" product can take on different values, even to the same consumer (in this case, me). I bought a 12-pack of 12-ounce Diet Coke, a staple item in the Postrel refrigerator, for $2.98; that's about 2.1 cents per ounce or 24.8 cents per can. Since I run though a lot of Diet Coke cans, especially when I'm writing, I generally know where the good deals are and try to pay no more than $3 for a 12-pack.

Yet I also purchased a six-pack of .5-liter (16.9-ounce) bottles for $2.78: 2.7 cents an ounce or 46.3 cents a bottle. Unlike the "staple" cans for home consumption, I'll take these bottles with me in my purse or the car. I do generally treat a single bottle, regardless of its size, as one serving, but I like to be able to close the container to avoid spills.

Finally, I bought a cold 20-ounce bottle of Diet Coke for $1.08, or 5.2 cents an ounce, and drank it immediately. If I'd had the change, I might have bought a 12-ounce can of even colder Diet Coke from a vending machine for 50 cents, or 4.2 cents an ounce.

I can explain all these differences, but they aren't exactly "rational" in the engineering sense (even assuming you accept the rationality of drinking a dozen or so Diet Cokes a day). I doubt that Veblen would approve of these wildly different prices. But Friedrich Hayek would understand.

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