Luxury by Artificial Scarcity: The Concept of First Class in Trains

One might naively assume that class society is something from ancient times, when in fact, we encounter daily several separations of the lower, middle and upper class within society. This is when luxury comes into play: when reflecting on what luxury means to oneself, different explanations will be given each time. This is also pinned down by academic literature, stating that luxury is a mysterious concept¹. As a matter of fact, there are several ways to define luxury: whether in absolute terms, for example, we can all agree that yachts and private jets are luxurious products; in relative terms, i.e., the Macarons de Sprüngli; or as a personal intimate sphere, for instance, appraising time with family as one own’s luxury¹. Furthermore, there are common criteria to define luxury: a price cannot be justified with the mere functionality of the product, scarcity controlled by restricted distribution, and a mean for social stratification¹.

This brief theoretic approach is needed to deal with the central question of this article: Does the first class in trains count as luxury? A quick answer from many of us would be: “Yes, no doubt.” But when looking at it while acknowledging the theoretic framework of luxury, one can doubt his or her opinion.

First, let’s take a look at the current prices for first class in trains in Switzerland. The first-class GA (Generalabonnement, or general travelcard in English) travelcard for adults paid annually costs 6,300 CHF, compared to the second-class GA travelcard of 3,860 CHF (dated October 2022)². In fact, this is a difference in price of 2,440 CHF per year, +63% for a rather similar service, getting from A to B, said provocatively. If you take a sneak-peak into the first class of the Swiss trains, there is not much different, seat- and structure-wise. Traveling during quiet hours of the day, for instance, around 11 AM just before lunchtime, there will be basically no incentive to rationally explain why someone would choose first class over second class, given the lack of major benefits in the first class. However, when making the same analysis around 7 AM or 5 PM, the advantage of first class seems more than obvious: no crowds, no people sitting on the stairs due to seat constraints etc. This is when the criteria of luxury remind us of why luxury can be defined by scarcity and social stratification. Scarcity means that a good is not available in abundance, so there is a constraint to obtain it. Best example for scarce products is fossil energy sources, once they are gone, they are gone for good. What is scarce, is precious. Companies have understood that a while ago and play with demand by creating artificial scarcity. This way, products become more precious in the perception of the consumer, since they are not available forever. A good example are limited editions of any kind, take for instance the Red Bull limited editions of seasonal flavors. Consumers perceive limited editions as more valuable since there is a time constraint in obtaining the products. Going back to our trains at rush-hour in Switzerland, space to stand and seats to sit on are precious – artificially constraint by having too little second-class wagons within one train. By way of example, if a train consists of six wagons, three of them being first class and three of them being second class, the space problem could be resolved by having one first class wagon and five second class wagons – this would be a more appropriate distribution, with respect to the demand, however, this would take away the luxury criteria of scarcity. Artificial scarcity is needed in order to provoke a desire to pay 63% more for the transportation service from point A to B. What is more, by dividing train commuters into two sections, there is automatically a social stratification – on purpose or not, it happens, nevertheless. This is even more provoked by the seat designs in first class, all having a dominant “1” at the head pillow.

How can a train company such as SBB CFF FFS justify having a first class altogether? At first glance, there are merely benefits from travelers’ perspective. In order to understand the corporate perspective on their offer of first class, we need to take a look into micro-economical price discrimination. Above all, let’s remind us that the SBB CFF FFS is in Switzerland, just like any other train corporations in many other countries, a monopoly, meaning that they have no noteworthy competitors offering a similar service, they are free to select a price – there is no worth-mentioning competition within the Swiss train market pushing the price down. There are three different ways to price-discriminate depending on the characteristics of the consumer demand. The first degree of price discrimination occurs if a company is able to change the demanded price for every consumer, which happens quite often in consultancy services. The second degree of price discrimination is by incenting purchasing larger quantities of a service or products – the famous quantity discount “buy 3 get 1 free”, or within our theme of train travelling: when purchasing the GA travelcard and paying annually, it costs 6,300 CHF for first class and 3,860 CHF, however, if you opt for the monthly payment, you pay 6,540 CHF for first class and 4,080 CHF for second class in total, per anno. What is interesting, is that the difference in price between monthly and annual payment in first class is a 4% increase, while the same difference in price for second class is a 6% increase. The third degree of price discrimination occurs, when a monopoly can distinguish different groups within their demand and is able to set different prices for the respective groups, keeping in mind the groups’ different price elasticities, i.e. how willing they are to pay for an offered service. This is exactly what the monopoly SBB CFF FFS is doing: they observe two groups within their demand: the ones who willing to pay more for obtaining more space and they ones who just want to pay for the transportation service.

In the end, consumers need to choose for themselves if they want to travel first or second class, depending on their budget and on their definition of luxury. The aim of this article is to educate on the economic theory of luxury and on economic price discrimination, within the sphere of train travelling. Consequently, one can form his or her own education opinion on first class.

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