California Swipes Left on Social Surplus
]In March 2015, Tinder released a feature called Tinder Plus which allowed users the ability to rewind swipes, more super likes and the option to swipe for people in other countries. The catch? Users 29 and older were being charged double the fee for this service. Along with the settlement of $17.3 million, Tinder will be forced to set a uniform price across ages in California.
The plaintiff filed a class action complaint on behalf of California Tinder Plus users over the age of thirty, suing for age discrimination in violation of the Unruh Civil Rights Act. Tinder argued that the age-based pricing was reasonably based on market testing showing younger users were more budget constrained than older users and needed a lower price point to pull the trigger. Despite Tinder’s plea, the Court of Appeals ruled that “whatever interest society may have – if any – in increasing patronage among those under the age of 30…that interest is not sufficiently compelling to justify discriminatory age-based pricing”. While the court may not believe that society is interested in increasing Tinder’s young customer base, it should pay attention to changes in social surplus that result from limiting Tinder’s ability to price discriminate.
Without the ability to price discriminate, producer surplus will likely be diminished as price sensitive young users are priced out of the market and more price elastic older consumers pay less than their willingness to pay. Additionally, if the price is lowered for older customers, some surplus will be transferred from Tinder to older customers. However the number of relatively price inelastic older consumers that will now subscribe to Tinder Plus will be small compared to the number of younger consumers that can no longer afford Tinder Plus if their price is increased. As a result, the total quantity of consumers will decrease. Social surplus, the sum of producer and consumer surplus, which does not depend on who keeps the surplus, will be diminished as the quantity of consumers decreases.
In the chart above, from the Price Intelligently Teardown of Tinder, you can see the willingness to pay for 24,812 current and prospective consumers for Tinder and Bumble (a similar service). The 18 to 24 year old group has an estimated willingness to pay of $9.47 and the 25 to 30 year old group has a willingness to pay of $11.08 while the age groups 31 and greater have willingness to pay upwards of $18.98. These estimates support the previous prices set by Tinder. These third-party willingness to pay estimates also corroborate Tinder’s claim that younger consumers are more budget constrained than their older counterparts. As Tinder sets new prices following the court’s decision, we should watch carefully to see if they choose to price their younger customers out of the market, lower the price for older customers, or both.
SOURCES:
San Diego County Bar Association