Monday, February 18, 2013

The power of the market and price discrimination*

About a week ago the makers of Maker's Mark whiskey (of which I am a fan) announced that they were going to dilute their product from 90 proof to 84 proof. The reason this was needed is because it takes 5 - 7 years to age Maker's Mark and demand has increased since 2008. Rather than raise the price, a common remedy for a shortage, Maker's Mark instead intended to increase supply. That did not go over very well with many customers and Maker's Mark has since reversed course. This is an example of consumer sovereignty, a term I teach in my ECON 211 class, or more simply as the market has spoken.

There was a another option for Maker's Mark though, pointed out by Tim Worstall of Forbes. Not sure how it would have worked out but he is certainly thinking like a profit maximizer when perhaps the executives at Maker's Mark were not.

*Though Mr. Worstall  refers to his idea as price discrimination it is really nothing more than introducing a new product to the market to meet a subset of the demand. Selling 90 proof Maker's Mark to different people for different prices would be price discrimination.


  1. The title of your post includes price discrimination, yet you say nothing about it in the actual content.

    All I see are Maker's Mark trying out two different options to meet an increase in demand. No p.d. Involved.

  2. I see your point. Price discrimination is not the best term to use here. They are simply creating a new product. Thanks for the comment.

  3. Yeah I was actually more commenting to the article than the post. One other thing I disagree with what the Forbes guy said is this:

    Maker's Mark is owned by Beam, which is publicly traded. So, for starters, I think they know a little better than some journalist about how to maximize their profits since they have to answer to shareholders.

    Second, Maker's Mark is a well-known bourbon, and if you go changing the price drastically across consumers and locations you'll easily anger returning customers. That is why changing the alcohol content created such an uproar; it would be like McDonalds changing their hamburgers to veggie burgers.