What Is Price Discrimination?

1337 Words6 Pages
What is price discrimination?
For first time readers one would think price discrimination is race, sex, and class issue but incredibility it has nothing to do with that. This chapter discusses the concept of price discrimination. What is price discrimination? It “is defined as the existence of price difference across customers for the same good that are not due to differences in the marginal costs of supplying the customers.”( North and Miller, 1971, p.122). Price discrimination arises when marginal costs remain same for consumers but the prices vary. Or the opposite when prices are the same for consumers but marginal costs differ. For example at movie theaters there is a price difference for senior citizens and non senior citizens. The
…show more content…
So let’s say there is a company selling goods to two different types of groups. The working class and the retirees. The retirees have a lower income than the working people. They will be considered to have a price elasticity of demand for the goods. In other words they are eligible to be charged differently than to the working class. Companies can lower prices for retires and raise the prices for the working people at the same time gaining higher profit. Companies have to be concern that the customers who are buying goods are in fact retirees and working people. That the customers are not allowed to resale their goods. Pharmaceuticals companies by law are prohibited to resale prescription medications. Movie theaters prevents resale for lower prices by making sure that the customer must attend personally. Companies such as Netflix do not offer discounts for senior citizens because it will be easier for person to get a discounted price without meeting the eligibility.
Price Discrimination in Airlines Airlines are well known for price discrimination. Before 1978 airline fares in the US were regulated by the federal government. All airlines were charged the same priced. After 1978 this regulation deflated. Airlines discovered that there was differences in price elasticity of demand for customers. For example business travelers had a lower price elasticity and willing to pay a higher price than others. They are
Get Access