differential pricing, market differentiation, adaptive cooperation
Let’s say I own a public good with limited or costly excludability, as well as loose rivalry — a private beach. That is, I want my beach to be enjoyed freely and responsibly by a reasonable number of people. But I neither want to pay for a bouncer nor clean the beach myself. What to do is an open secret.
I post a sign outside my beach, saying “NO TRESPASSING”.
But I won’t enforce it! And if anyone (those who I consider friends) asks, I’m going to explicitly tell them I won’t enforce it! And that they may even bring people to my beach if they like!
Access to the beach is now an open secret. It’s something that people can freely tell those they trust about. The number of people visiting the beach will rise slowly over time. Maybe it’ll eventually increase to be too much; or maybe it’ll level off, due to churn in the population near the beach.
Now if some tour company tries to drop off a whole busload of tourists at my beach, though, I’m going to certainly (with the help of the police if necessary) kick them out, pointing at the “NO TRESPASSING” sign.
Most likely, the cops would ask me about the “friends” already on the beach:
Those people on the beach right now? They’re my “friends.” No, I don’t exactly know them… but I know people who know them! They’re “on the guest list.” But these people standing by the bus over here — these are not my friends. These are people brought here by a guy trying to profit off of providing others access to my beach, which I have not granted. They are not allowed in. Nobody brought here by this bus company will ever be allowed in.
The same holds true (mutatis mutandis) for underground parties, or travel destination for the rich. These are open secrets, with guardians who actively lie by exaggerating the restrictions or conditions in place, to balance the secret’s spread.
Open secrets and Market differentiation
- Consider discount codes given out to Influencers: Open secret.
They would not mind if you — or your friends — use the codes, but a commercial application like Honey, or the public at large would be a different story. - The unmentioned and implied to be finite, infinite free trial period for WinRAR: Open secret.
If WinRAR never implied you had to buy it at some point, nobody would have ever bought it —it’s free! But add some social pressure to anchor their expectations, to induce reciprocity, and they do buy it. This is the basis of the freemium business model. - The CPU binning lottery: Open secret. You can keep returning retail-purchased CPUs until you get one that is stable under exceptionally high frequencies. And people have been doing this for decades! In fact, CPU vendors don’t care—they want these few super-enthusiasts to get their hands on their best CPUs to publish some really nice benchmarks with them as Free advertising! But they certainly don’t want a company doing this in bulk, though. What would they do with a huge pile of returned known-below-average-binned CPUs? If you do this binning by yourself, consider selling it as an i9xxxxxKS or a similar premium product.
- Students and teachers discounts: Open secret.
Anyone can become a student at any time, just by signing up for a zero-tuition-until-you-take-courses online university program and using the resulting .edu address.
You can exploit any/all of these open secrets if you know, and you’re not in a situation legally preventing you from doing so — corporations can’t pirate things or study.
And some people know; but most people don’t.
In this equilibrium, it is a marketing expense, and not a hole in your monetization.
It’s extra work to carefully design and manage the R0 (factor of virulence) of an open secret so that it’ll hit equilibrium, rather than spreading to fixation or dying out. The outbound word-of-mouth advertising required to get an underground party to happen, for example, is way more work than just putting up posters! It would almost have been easier to just have no secret at all!
Conclusion
If you sell something, you can use open secrets to differentiate your customers, and serve each group on its own. You thereby can increase the value created, or capture a bigger part of it. Doing so is not free, but you can share the burden by putting up a knowledge barrier and selling access.
In private, invest into a knowledge network —share open secrets with whom you trust and get the reward of social learning in return.