A woman complained to “Dear Abby” that a laundry charged $1.25 each to launder and press her husband’s shirts, but for her shirts—the same description, only smaller—the laundry charged $3.50. When asked why, the owner said, “Women’s blouses cost more.” Abby suggested sending all the shirts in one bundle and enclosing a note saying, “There are no blouses here—these are all shirts.” Is the laundry practicing price discrimination, or is there really a $2.25 difference in cost? Assuming the laundry is engaging in price discrimination, why do men pay the lower price and women the higher? Could the laundry continue to separate markets if people followed Abby’s advice? What about the policing costs associated with separating the markets?
A woman complained to “Dear Abby” that a laundry charged $1.25 each to launder and press her husband’s shirts, but for her shirts—the same description, only smaller—the laundry charged $3.50. When asked why, the owner said, “Women’s blouses cost more.” Abby suggested sending all the shirts in one bundle and enclosing a note saying, “There are no blouses here—these are all shirts.” Is the laundry practicing price discrimination, or is there really a $2.25 difference in cost? Assuming the laundry is engaging in price discrimination, why do men pay the lower price and women the higher? Could the laundry continue to separate markets if people followed Abby’s advice? What about the policing costs associated with separating the markets?
Chapter5: Supply, Demand, And Price: Applications
Section: Chapter Questions
Problem 8QP
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Question
A woman complained to “Dear Abby” that a laundry charged $1.25 each to launder and press her husband’s shirts, but for her shirts—the same description, only smaller—the laundry charged $3.50. When asked why, the owner said, “Women’s blouses cost more.” Abby suggested sending all the shirts in one bundle and enclosing a note saying, “There are no blouses here—these are all shirts.”
- Is the laundry practicing
price discrimination , or is there really a $2.25 difference in cost? - Assuming the laundry is engaging in price discrimination, why do men pay the lower price and women the higher?
- Could the laundry continue to separate markets if people followed Abby’s advice? What about the policing costs associated with separating the markets?
Expert Solution
Step 1: Define price discrimination
Price discrimination refers to the situation where seller is selling the same product or services in two different markets on different prices.
This is strategies in imperfect market to get more profit.
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