The title of an article in The Wall Street Journal was

“Pricing of Products Is Still an Art, Often Having Little Link to Costs.” In the article, the following cases were cited:

• Vodka pricing: All vodkas are essentially indistinguishable—

colorless, tasteless, and odorless—

and the cost of producing vodka is independent of brand name, yet prices differ substantially.

• Perfume: A $100 bottle of perfume may contain $4 to

$6 worth of ingredients.

• Jeans and “alligator/animal” shirts: The “plain pocket”
jeans and the Lacoste knockoffs often cost 40 percent less than the brand-name items, yet the knockoffs are essentially identical to the brand-name items.

a. Do these differences undermine economists’ analysis of pricing? Why or why not?

b. What does each of these examples likely imply about fixed costs and variable costs?

c. What do they likely imply about costs of production versus costs of selling?

d. As what type of market would you characterize each of the above examples?