Price Discrimination Essay

1597 words - 6 pages

Price Discrimination

Prices are based upon the price elasticity of demand in each given market. In other terms, this means that during ladies night at the local bar, it costs more for men to have a beer than women simply because these bars find it o.k. to charge females less, as a way to draw more females to the business on a specific night.

Price discrimination is part of the commercial and business world. Movie theaters, magazines, computer software companies, and thousands of other businesses have discounted prices for students, children, or the elderly. One important note though, is that price discrimination is only present when the exact same product is sold to different people for different prices. First class vs. coach in an airline (though sometimes just differing in how many free drinks you can get) is not an example of price discrimination because the two tickets, though comparable, are not identical.

Price discrimination is based upon the economic thoughts and practice of marginal analysis. This process deals specifically with the differences in revenue and costs as choices and/or decisions are made.

Profit maximization is achieved not when the number of products sold is the highest, nor when the price is the highest. Profitability price discrimination is only profitable if and when the given target groups price elasticity of demand differs to the point where the separate prices yield to profit maximization for each given group in question (where marginal revenue equals marginal cost). Groups that are more sensitive to prices, (students and senior citizens for example), have a lower price elasticity of demand and are the ones that are often charged the lower prices for the identical goods or services. The key to price discrimination and using it to fully compliment other economic practices, ultimately achieving the total profit maximization, is the ability to effectively and efficiently collect, analyze, and act upon data gathered about the different groups.

First of all, the groups must be accurately identified and the differences between groups must be thought of ahead of time. Children, genders, and senior citizens are easily singled-out by appearance, while military personnel, college students, and other groups must carry some sort of identification. Firms typically will quote the highest prices in advertisements, and then offer discounts to qualified groups.

The three basic conditions for price discrimination to be effective are: 1) Consumers can be divided into and identified as groups with different elasticities of demand. 2) The firm can easily and accurately identify each customer. 3) There is not a significant resale market for the good in question.

The thought process behind the practice of first degree price discrimination is that the firm has enough accurate information about the consumer, and that products can be sold each time for the maximum amount that the consumer is willing to...

Find Another Essay On Price Discrimination

Rationality of Company in Context of Price Discrimination

2173 words - 9 pages StrategyPrice DiscriminationIntroductionPrice discrimination is a practice where a firm sells the same product to different customers at different prices (McDowell M. and Thom R. 2001: p.258). The rationale behind price discrimination is to increase revenue and profits.In order to discriminate the customers by price a firm should meet three conditions•The firm should be able to set its price in market.•Consumers in low-priced market

Ethical and legal analysis of the Ann Hopkins v. Price Waterhouse discrimination law suit. Focuses on case law and ethics

3145 words - 13 pages CONCLUSIONSBased on the case law that preceded this case it is evident that regardless of the outcome, Price Waterhouse not only knew of Title VII violations but supported them through partner actions. As a matter of fact, the counsel for Price Waterhouse admitted to some degree of sex discrimination on the part of the partners but maintained that it was just one factor in the decision of partnership [3]. Essentially, this is enough to declare that

Explain why Siny Plc may attempt to discriminate on price and advise the company on the conditions necessary for implementing the strategy

2511 words - 10 pages Price discrimination can be defined as the differences in the ratio of price to marginal cost across buyers or unit of a good. One form of price discrimination is the practice of a firm charging multiple prices for the same good where the difference in price is not attributable to a corresponding difference in cost. Another form of price discrimination is the practice of a firm charging the same price for all units of the same good when there

Perfect Competition

938 words - 4 pages Question 5 Firms often use price discrimination to increase profits. In order to price discriminate successfully, firms have to consider the possibility that consumers do not behave as expected (eg by buying in a different market) and the strategic responses of middlepersons / competitors (eg arbitrage). Review the theory of price discrimination and identify for each specific type of discrimination you consider the types of strategic responses

Relationship Between Players’ Salary and Racial Discrimination in Major League Baseball

1743 words - 7 pages price, if teams divide the rank of prospects. For instance, a prospect with higher rank could sign on a contract at a reasonable down payment with signing bonus while the other prospect with lower rank could sign on a contract at the lower amount. This is where racial discrimination possibly affects on players’ salary because many prospects are recruited from countries in South America and Asia. In order to look further, it is necessary to look at

Coca Cola Case

1053 words - 5 pages Report for Coca Cola Case:Problem:1. Whether Coca cola should introduce the concept of vending machines that chargesdifferent price during different weather?2. What did Coca Cola do right? What did it do wrong? How would you do it?3. What is price discrimination and when does it work?Decision Analysis:Coca cola plans to introduce the concept of price discrimination in its market through vending machines that will charge different price according

PRISM Case Study

1243 words - 5 pages 32 D 34 4 136 28 E 32 5 160 24 F 30 6 180 20 G 28 7 196 16 H 26 8 208 12 Price discrimination occurs when essentially the same good or service is provided to different buyers (or different units of the same good to the same buyer) at different prices, the difference in price being unrelated to the cost of providing (production, transport etc.) the good or service. The aim of Price discrimination

Antoinesha Gresham What is racial discrimination?

978 words - 4 pages Ahn. “The Relation Of Racial Identity, Ethnic Identity, And Racial Socialization To Discrimination–Distress: A Meta-Analysis Of Black Americans." Journal Of Counseling Psychology 60.1 (2013): 1-14. PsycARTICLES. Web. 21 Jan. 2014. Price, John, et al. "Black, White, And Read All Over: Institutional Racism And The Sports Media." International Journal Of Sport & Society 3.2 (2012): 81-90. SPORTDiscus with Full Text. Web. 28 Jan. 2014. "racism." Merriam-Webster, 2011. Web. 20 January 2014.

Racial Discrimination the U.S. Labor Market

2828 words - 11 pages leaving their employer than heterosexual Caucasian men and twice as likely as heterosexual Caucasian women. The survey also suggests that most of the employees who were treated unfairly credited racial discrimination as the cause of mistreatment. From litigation expense to employee turnover costs, companies pay a hefty price for racial discrimination The two most common types of racial discrimination cases litigated today are racial disparate

Industry Research Completion. provide an Economic Profile of the Industry You Have Researched. In Your Paper, Discuss How the Following Impact the Industry

2415 words - 10 pages published by the New Roles Project titled: Antitrust - Price Discrimination, the author mentions that the Federal Robinson-Patman Act prohibits manufacturers and suppliers from providing price discounts and other forms of preferential treatment to some buyers and not to others, if the effect of such discrimination is to lessen competition or injure individual competitors. Volume discounts are allowed only to the extent that they reflect actual


1659 words - 7 pages pricing. There is both an art and a science to price differentiation. The art of pricing differentiation lies in the way of finding a way to divide the market into different segments such that higher prices can be charged to the high willingness to pay segments and lower prices are charged to the low willingness to pay segments.Pricing Nirvana - the ultimate in one-to-one pricingThird-degree price discrimination - charging every customer exactly

Similar Essays

What Is Price Discrimination? Essay

1511 words - 7 pages Price Discrimination Price discrimination is charging consumers with different prices for identical similar products, which are not related to costs of production. An important point to mention, Products that varies in prices due to cost variation and justification are not considered as price discrimination. For example, charging different prices for the same product for different geographical locations does not result into price discrimination

Competition And Price Discrimination Essay

2242 words - 9 pages offers to competitors. This allows a competitive market with a chance for competitors without own infrastructure to act in the market.Part II - "They 're watching you"a) Why do you think is there a business case for companies to introduce price discrimination in the internet? Is there something to gain?"Business firms operating in competitive markets are not restricted to charging only one price for their product. The charging of different prices for

The New Price Discrimination Essay

960 words - 4 pages campaigns regarding their customer’s shopping habits and that puts us all at risk for some possibly unscrupulous price discrimination. Most of us are familiar with the concept of price discrimination or variable pricing. For example, a baseball fan buys tickets a game and he pays $15 for his seat, but the guy sitting next to him paid just $10 for his. Or maybe a family buys round trip airfare for a four to visit Disneyland and pay $1000 for their

The Theory Of Price Discrimination Essay

769 words - 4 pages The modern theory of price discrimination began with the work of Arthur Cecil Pigou (1877- 1959) and is defined by Machlup (1955): "Price discrimination may be defined as the practice of a firm or group of firms of selling (leasing) at prices disproportionate to the marginal costs of the products sold (leased) or of buying (hiring) at prices disproportionate to the marginal productivities of the factors bought (hired)". But in simpler terms