Price Discrimination

Categories: Company Management

Ever wonder why your your little old grandma gets to pay less for her movie tickets than you do? Or why airfares on the same flight can be as much as double depending on how close to the flight you buy your ticket? Or why you sometimes get stuck behind some lady at the grocery store as she sorts through a giant stack of coupons at the checkout, while all you want to do is swipe your darn card and get back home to watch a football game?

Well, in each of these cases, nothing scandalous, nefarious, or treacherous is going on. What’s really happening is an entirely common method of pricing products practiced by nearly all business, known as price discrimination.

Price discrimination occurs when a seller charges different prices to different consumers for the same product. In order for it to occur, the following three conditions must be met:

1. A seller must have some monopoly power (price-making power). In other words, it cannot be selling a good identical to goods sold by hundreds of other sellers.

2. A seller must be able to segregate the market into different consumer groups. Ways firms segregate buyers include by age, gender, ethnicity/nationality, income level, and price sensitivity.

3. Resale by buyers must be impossible (or at least very difficult). If it were easy for a low-price buyer to resell a good to someone who would otherwise have to pay a higher price, this would undermine the business’s ability to price discriminate.

So far, this is, in fact, sounding like a pretty nefarious practice. “Discrimination,” or at least “segregation." So it sounds like a case study in the darkest era of 20th-century American history. But, in fact, price discrimination is widely considered beneficial by economists. Here’s why. Rather than looking at it as “some consumers have to pay more,” the practice could be looked at as “those who cannot afford to pay as much...get to pay less.” Your grandma may be on a fixed income and therefore cannot afford $15 for a movie ticket. Shouldn't society's better-haves then pay more so that she can be accommodated?

Another thought. If you buy your plane tickets seven months in advance, chances are you’re a flexible, leisure traveler and can shop around for the cheapest fares, saving you money. The lady at the checkout may be near the poverty line, thus those coupons allow her to purchase food more cheaply than shoppers who are less concerned about getting $2 off a bottle of Tide.

Price discrimination allows more people to afford products that otherwise would sell for a single, higher price. Sure, sellers benefit through increased sales and profits, but other more active resource-allocaters believe that society as a whole is better off when those who are able to pay more...do, while those who are able to pay less...can.

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Cost Accounting: What is Price Discrimin...4 Views

00:00

And finance Allah shmoop What is price discrimination Oh well

00:08

it's kind of like any other form of discrimination on

00:11

ly with pricing Same product sold to different people at

00:14

different prices Those hundred golf balls at the range Yeah

00:18

there for students there Ten bucks for non students Fourteen

00:21

bucks They're not fair What about loans Democrats have hired

00:26

default rates than Republicans Is it fair to charge Democrats

00:30

higher loan rates Same product different price Well what about

00:34

hot dogs The hot dog vendor sizzle in Weiner's charges

00:37

Two bucks a dog for its white customers and five

00:40

bucks a dog for well everyone else Fair Not fair

00:44

Yeah that one's easy Not fair not legal What if

00:47

you had the opposite hot dog company one that wanted

00:50

to charge racist Mohr than non racist How about that

00:54

Fair Not fair Interesting Legally Not fair and not really

00:59

practical Most racist Don't wear an identifying armband Okay well

01:03

what about airlines Buying airline tickets Way in advance then

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your Ah planner You get one price Maybe you're a

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nervous Nellie and terrified you don't get the seven a

01:13

m to JFK six months from now so prices segmented

01:17

Teo you are high Or maybe you're a bargain hunter

01:20

willing to commit way in advance in return for a

01:22

discount Well different segment prices then are probably cheap too

01:26

You What about bar night entry fees Remember all of

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those women get in free price discriminatory pricing nights Well

01:34

their intent was to change the bar scene from being

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like eighty seven horny drunk men and well three terrified

01:41

women to making the social mores a bit more balanced

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or evenly spread out So bars tried to balance things

01:48

by offering free entry to women But of course some

01:51

full sued the bars and claimed the practice was priced

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discriminatory and one So yeah here's what those same bars

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look like today So yeah that's price discrimination laws A

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little bit unclear Yes Slippery slope and all that You've

02:05

got to do some thinking here to figure out what's 00:02:07.533 --> [endTime] fair and what's not eh

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