An introduction to the issue of price discrimination

Age discounts are usually broken down by child, student, adult, and OAP. A Ladies Night at a bar or club is a form of price discrimination. The seller is still making a profit. For example, telephone and electricity companies separate markets by time - there are usually three rates for telephone calls: This discrimination is the most common.

If they find out they are being charged more online than Joe Bloggs down the road then they rightly get upset. The downside is that some consumers will face higher prices.

This gives the airline the advantage of knowing how full their flights are likely to be and is a source of cash flow prior to the flight time. These consumers may be able to take advantage of companies with geographic price differentials.

The reason for this price discrimination is that at off-peak times there is plenty of spare capacity whereas at peak times when demand is high the supplier may experience capacity constraints. Peak and Off-Peak Pricing Peak and off-peak pricing is common in the telecommunications industry, leisure retailing and with utility companies.

For example, a theater may divide moviegoers into seniors, adults and children, each paying a different price when seeing the same movie. Examples of Price Discrimination Price Discrimination in the Travel Industry The travel industy conducts a substantial portion of their business using price discrimination.

When demand for a particular flight is high, airlines raise ticket prices. Privacy is another issue. Methods of Price Discrimination include: Because prices vary among units, the firm captures all available consumer surplus for itself. Markets must be kept separate by time, physical distance and nature of use.

An Example of Price Discrimination in Airlines Consumers buying airline tickets several months in advance typically pay less than consumers purchasing at the last minute. Consumers already have their doubts and it is essential for retailers to try to maintain trust.

Leisure Centres on the other hand will often charge more for evening and weekend attendances because this is when the majority of the public want to use the facilities.

Second-degree price discrimination occurs when a company charges a different price for different quantities consumed, such as quantity discounts on bulk purchases. Price discrimination is one way to manage demand. Conclusion Price discrimination may enable a business to turn a loss into a small profit - or a business activity can keep going, rather than close down.

For example, Microsoft Office Schools edition is available for a lower price to educational institutions than to other users. Third-degree price discrimination occurs when a company charges a different price to different consumer groups.

Price Discrimination

For instance, if there was no price discrimination morning rush hour trains would be even more overcrowded and it can be used to give an incentive for some people to go later in the day.

Coupons allow price sensitive consumers to receive a discount. These groups often have less disposable income than the average consumer. This is obviously beneficial for consumers because it increases their choice of goods and services.

Electricity suppliers also offer cheaper off-peak electricity during the night. People who book late often regard travel to their intended destination as a necessity and they are likely to be willing and able to pay a much higher price.

Customers want to be treated fairly. One example of this might be rail travel. Similarly, wholesalers can offer price breaks for quantity purchases and they can offer customized merchandise but they cannot influence competition by limiting these offers to a few select retailers because doing so would harm excluded retailers.

The company must also have monopoly power to make price discrimination more effective. Conditions for Price Discrimination The company identifies different market segments, such as domestic and industrial users, with different price elasticities.

This should mean that those who have to travel at rush hour benefit from less congestion.Chap Study Questions. STUDY. PLAY. 1. Which of the following is true of price discrimination? a. It refers to the illegal movement of commodities from one country to another.

b. It refers to the practice of charging different prices to different consumers for the same product.

Price discrimination

c. It is practiced by competitive firms to enjoy long run profits. What is price discrimination and its effect on economies. Print Reference this. Introduction. Price discrimination is the practice of one retailer, wholesaler or manufacturer charging different prices for the same items to different customers.

Price discrimination plays a major role in the privacy which is much debated and one of the. Price discrimination is illegal if it’s done on the basis of race, religion, nationality, or gender, or if it is in violation of antitrust or price-fixing laws.

The Robinson-Patman Act targets anticompetitive effects of differential pricing, but the online market is highly competitive and those effects are unlikely to arise. For industries with high fixed costs, price discrimination has another benefit - the extra profits generated by price discrimination mean that it's more profitable for the company to engage in research and development to produce more new drugs for instance.

Price discrimination: Price discrimination, practice of selling a commodity at different prices to different buyers, even though sales costs are the same in all of the transactions. Discrimination among buyers may be based on personal characteristics such as income, race, or age or on geographic location.

For price. Keywords: price discrimination effects, price discrimination definition, price discrimination analysis The main reason to carry on economic functions of a firm is profit maximization.

In the way to the profit maximization main variable is the marginal cost of the products they sell.

An introduction to the issue of price discrimination
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