Netflix took a calculated risk this week in forcing a large number of their subscribers to make a choice that they already declined once. Attempting to bucket their consumers into costly physical media stalwarts versus more profitable instant downloaders, people now have to choose to receive discs by mail for $8, movies online for $8, or pay for both at $16.

They already gave users an option to go online only for a savings of $2 over the new combined plan of $10 just a few months ago. By entirely eliminating the middle path for everyone, they risk losing a large portion of their subscriber base.

Even telecom companies, which routinely rank at the bottom of many customer satisfaction surveys, have never raised their rates by 78% in one year (from $9 > $16). Though some subscribers will doubtlessly succumb, it is a bigger risk for Netflix than it would be for other companies. They are raising prices for everyone on the plan at once because they do not lock anyone into contracts and are not giving any bonuses for loyalty.

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Two weeks ago, I went looking for a veritable needle in a haystack. I managed to find the pin by some miracle somewhere within my many boxes. I also pulled out a few other items of interest, including two books I had previously started but never finished. One was the Brothers Karamazov. The other was the biography of IKEA founder Ingvar Kamprad.

I just started another massive novel recently, so I chose to alternate between that and Swedish business acumen before digging into Russian literature.

(I laugh every time I see this so I had to borrow it; please visit Erik Johansson for more great work!)

I think my favorite part in the entire IKEA book is quite early on, regarding the transition from mail order to showroom. This unlikely reversal of trends was critical for a few reasons. Of course people still yearn for the tactile sensation prior to buying some specific goods such as furniture and clothing. Yet it is the opportunity to compare two levels of product that was the key takeaway. Anyone can race to the bottom in terms of price. Ordering by mail or now online without being able to compare specifications or see the product in person will inevitably lead one to choose the cheapest model. And then you will probably regret it when you receive something that falls apart or stops working.

Kamprad’s insight was to simply let people judge products for themselves. Contrary to what some economists would have you believe, consumers chose to pay slightly more for significantly higher quality.

This reminds me of a famous pricing study of the Economist. The publisher sold more subscriptions when they offered a more expensive plan. I forget the exact details, but it was something like print only: $99, print and online access: $149.

Offering both increased sales more than when there was only one price, because buyers were more satisfied in believing that they got a deal. Plus, the publisher had the opportunity to make even more money than intended. This way, producers sell more and may even be able to raise prices in the face of conventional wisdom.

It amazes me that this seemingly obvious rule of economics has not yet been applied across the board, particularly at the supermarket. Slowly grocers have begun to realize that selling organic and/or locally grown produce can be quite profitable. Yet what about other food and drink?

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Yesterday I met Jeffrey Miron, a Harvard economist and author of Libertarianism: A to Z. Some people may not agree with his views on health care, but I think it is important to recognize at least one group of people who are fighting to expand legal immigration.

I mention this because I recently joined the board of a non-profit that provides job placement assistance for immigrants who have entered legally with a college degree and at least two years of experience back home. In other words, smart people who have worked hard to get here and can make an immediate impact in our society with their inspiration and perspiration. Also of importance to me is that the service helps them provide for themselves and their families — rather than giving economic assistance. They never ask for a handout; all they want is a chance.

Why would I get involved in such a cause when my family has been here for over 200 years?

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