Profit-maximizing Vending Machines

February 17, 2008

Back in the early ’80s, MIT got vending machines with prices displayed using LCDs.

Coke vending machine

At the time, I was taking a Principles of Microeconomics class. I noticed how these machines got most of their business during the break between classes. And thus began my speculation about profit-maximizing vending machines, based on supply and demand curves.

Imagine that this machine tracked buying patterns by time of day, day of week, and month. It should be able to reasonably predict the expected odds of a purchase (the demand) being made in the next 10 minutes or so. Given that information, what would happen if the price fluctuated up/down based on the expected demand? Heck, you could even throw in the number of remaining cans and the anticipated restocking time.

I’d expect that the price between classes would jump up dramatically, and fall over the weekends. This doesn’t seem like classic supply and demand theory, in that it’s really taking advantage of local, repetitive variations in the overall demand curve, but the basic concept is still similar.

Supply and demand curve

But what happens with a similar machine from the Pepsi-Cola company gets installed next to it? A cola price war? And would students start sneaking out during lecture to get the better price? As you might guess, my micro-econ lectures provided lots of opportunity for such idle speculation.

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