From: jim bell <jimbell@pacifier.com>
Date: Tue, 13 Aug 1996 08:35:17 +0800
To: "E. ALLEN SMITH" <cypherpunks@toad.com
Subject: Re: Article on Electronic Commerce with a few too many assumptions
Message-ID: <199608122000.NAA19713@mail.pacifier.com>
MIME-Version: 1.0
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At 10:32 PM 8/11/96 EDT, E. ALLEN SMITH wrote:
>[Permit me to recommend that you read this very interesting draft paper
>and send its author, Andrew Odlyzko, detailed comments.]
>                            Andrew Odlyzko
>                         AT&T Labs - Research
>                         amo@research.att.com
>                   Preliminary version, August 9, 1996

[lotsa stuff deleted]
>
>There are many examples in the marketplace of behavior that appears 
>even less fair.  For example, in 1990, IBM introduced the LaserPrinter 
>E, a lower cost version of its LaserPrinter.  The two version were
>identical, except that the E version printed 5 pages per minute
>instead of 10 for the regular one.  This was achieved (as was found by
>independent testers, and was not advertised by IBM) through the
>addition of additional chips to the E version that did nothing but
>slow down processing.  Thus the E model cost more to produce, sold for
>less, and was less useful.  However, as Deneckere and McAfee show in
>their paper [DeneckereM], which contains many more examples of this
>type (referred to as "damaged goods"), it can be better for all
>classes of consumers to allow such behavior, however offensive it
>might be to the general notions of fairness.  Consumers who do not
>need to print much, and are not willing to pay for the more expensive
>version, do obtain a laser printer.  Consumers who do need high
>capacity obtain a lower price than they might otherwise have to pay
>since the manufacturer's fixed costs are spread over more units.

I too find this concept offensive, at least to the extent that it is kept a 
secret from the marketplace. Even so, as a libertarian and free-market 
capitalist, I certainly see nothing wrong with "allowing such behavior," and 
indeed  I'd see something wrong with NOT "allowing" it.  Nevertheless, to 
the extent it occurs it should be well understood and identified for what it 
is.

You might recall the Intel 386SX microprocessor, which was the 16-bit-bus 
version of the 386 DX, which itself had a full 32-bit bus.  At the time the 
DX was selling for many hundreds of dollars, probably about $3-400 or so,  
Intel sold the SX for about $80.  However, chances are good that the only 
difference internally between these devices is the bus interface unit, so 
the size and complexity of these two chips would have been virtually 
identical, and thus their costs would likewise be the same.  The reason for 
their vast difference in price was this "damaged goods" concept.  (A similar 
situation occurred with the 486SX versus the 486DX.)





Jim Bell
jimbell@pacifier.com