Can you use price discrimination in this business

Price discrimination : A producer that can charge price Pa to its customers with inelastic demand and Pb to those with elastic demand can extract more total profit than if it had charged just one price. An example of price discrimination would be the cost of movie tickets. Prices at one theater are different for children, adults, and seniors. The prices of each ticket can also vary based on the day and chosen show time.

Ticket prices also vary depending on the portion of the country as well. Industries use price discrimination as a way to increase revenue.

It is possible for some industries to offer retailers different prices based solely on the volume of products purchased. Price discrimination can also be based on age, location, desire for the product, and customer wage. There are a variety of ways in which industries legally use price discrimination.

It is not important that pricing information be restricted, or that the price discriminated groups be unaware that others are being charged different prices:. The airline industry uses price discrimination regularly when they sell travel tickets simultaneously to different market segments.

Price discrimination is evident within individual airlines, but also in the industry as a whole. Tickets vary based on the location within the plane, the time and day of the flight, the time of year, and what city the aircraft is traveling to. Prices can vary greatly within an airline and also among airlines.

Customers must search for the best priced ticket based on their needs. Airlines do offer other forms of price discrimination including discounts, vouchers, and member perks for individuals with membership cards.

The pharmaceutical industry experiences international price discrimination. Drug manufacturers charge more for drugs in wealthier countries than in poor ones. For example, the United States has the highest drug prices in the world. However, in many countries with lower drug costs, the difference in price is absorbed into the taxes which results in lower average salaries when compared to those in the United States. Academic textbooks are another industry known for price discrimination.

Textbooks in the United States are more expensive than they are overseas. Because most of the textbooks are published in the United States, it is obvious that transportation costs do not raise the price of the books. In the United States price discrimination on textbooks is due to copyright protection laws.

Also, in the United States textbooks are mandatory where as in other countries they are viewed as optional study aids. Price discrimination according to the time of day means that the flow of customers into retail stores can be managed more effectively, which might provide a better experience for shoppers and spread out the work for staff.

Firms may wish to trial new products in different locations, and may match their prices to the specific demand conditions found in those local markets.

Also, firms can offer discounts in order to get consumer feedback on these trialled products, and on existing ones. Similarly, price discrimination may enable firms sell to export markets, basing their prices on what consumers are prepared to pay in each territory — which can vary considerably from country to country. From a macro-economic perspective, international trade is likely to be created by price discrimination. As a result of generating additional revenue, price discrimination can enable firms to survive.

For example, small cinemas might be better able to survive if they can offer low priced off-peak cinema tickets to the overs for day-time screenings. Lower prices could also result from the application of scale economies as above. If we look specifically at goods and services consumed by children, but where adults are needed to accompany them, it can be argued that charging children a much lower price enables families as a whole to benefit, and gain increased group utility.

For example, if cinemas or theme parks set low prices for children or even zero price for those under a certain age , or offer with family discounts, more parents will be able to attend, and accompany their children. This means that, in the longer term, cinema chains and theme parks will increase their revenue and profits. The same logic can be applied to travel and holidays, with child and family discounts encouraging demand and helping generate revenue.

Having different prices may enable consumers to match their purchasing and shopping to their own free time. We can extend the analysis to consider the role of price discrimination in reducing market failure , such as enabling wider consumption of merit goods. With fixed costs covered, they can then offer places at discounted fees to cover the variable costs only to those who cannot afford them.

Given that the demand for private education by less well-off parents is likely to be price fee elastic, the lower price will encourage greater demand. Consumers can also gain from the fact that firms can more easily survive, so that future generations can derived continued benefit.

However, it could be argued that consumers in a captive sub-market are being unduly exploited due to their inelasticity. This is especially relevant when we look at transport, and the high ticket prices charged for peak travel, compared with off-peak.

Ultimately, the ability to price discriminate may be limited because the conditions necessary are not fully met. In other words, there are limits on the extent to which different prices can be applied. Clearly, with global commodities, world markets tend to settle on one price at any one time, given the process of arbitrage. The growth of new trading and selling technologies, apps, online auction bidding, and price comparison websites mean that consumers have increasing information, which may reduce the possibility of price discrimination.

However, the widespread use of dynamic pricing models by online sellers means that time-based pricing in increasingly common. Manufactured and branded goods fall somewhere between these two extremes, with price discrimination possible — especially in terms of new online pricing models — but where price differences may also be eroded through technology, trade and arbitrage. For related reading, see " Three Degrees of Price Discrimination ".

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