Entrance this way!
As students, many of you probably have a student identification card, which you might use when you go to the cinema or when you buy something in a shop offering student discounts. Your parents or grandparents, if they are 60 or over, may get similar discounts, and your younger siblings or nieces and nephews may pay nothing for certain services.
It doesn’t cost a cinema more to provide a seat for an adult than it does for a child, a student or a senior citizen. So, why is it that firms can charge different groups of consumers different prices, even though they are consuming the same good or service? We are, of course, referring to the ability of a firm to price discriminate. The following short cases look at the concept in action.
Price discrimination: Russians get a discount Daily Markets, Mark Perry (12/10/10)
Theme park tickets and passes for Florida residents Walt Disney World 2010
Price discrimination: India and Disney World Daily Markets, Mark Perry (10/10/10)
Freedom’s just another word for getting a state subsidy The Economist (18/10/10)
Questions
- What are the different types of price discrimination?
- In the cases in the articles above, what type of price discrimination is being used?
- Illustrate this concept on a diagram and explain why a firm would use price discrimination. How will it affect revenue and profits?
- What are the key conditions needed for price discrimination to take place? In the cases above, why is it that British consumers are charged a higher price? What does this tell us about their price elasticity of demand?
- What forms of price discrimination (a) are being practised by US private universities and (b) being proposed in the Browne report for students at English universities?
- What other examples of price discrimination can you think of? Try and think of examples that fit into the different types of price discrimination.