Economics Homework Help

Respond to each classmate 100 words or more

Price discrimination

Classmate 1

Price discrimination occurs when the same product or service is sold at a different price based on what the seller thinks a customer would agree to pay. There are three types of price discrimination – first-degree/perfect price discrimination, second-degree and third-degree.

The first-degree price discrimination occurs when a business charges the highest possible amount per unit. The second-degree price discrimination occurs when a business charges a different price based on the number of units consumed/purchased. For third-degree price discrimination to occur, the company charges a different price to different customers. For example, a movie theater divides its ticket rates based on ages – senior, adult, children. These individuals will still go see the same movie but will pay a different price to see it.

 This was the first I heard about price discrimination and it is funny in that it has been something that I knew existed as I do see the different charges for movie tickets or at restaurants where they have senior discounts, and even for houses – the 55 above communities. However, I was not familiar with the economic terminology.

I consider this a wise way to offer your products to consumers. It is also taking into consideration that the senior population is most likely not actively working and as such can spend less as an “adult” can. I often hear people complain when a child who is less than 11 years old pays the same price as an adult. In a way, society has been conditioned to this, that it can at times expect it from businesses especially those in the entertainment business.

Classmate 2

Price discrimination is a sales strategy in which businesses sell matching products with variable pricing models based on what value the demographic they are offering to is willing to pay.  The goal is to sell the highest amount of units for the most amount of revenue while preventing the loss of potential sales (i.e. selling products for the highest amount that customers are willing to pay for specific populations.) (Twin, 2021).    Direct, or third degree, price discrimination specifically occurs when companies price products and services differently based on the unique demographics of subsets of its consumer base, such as students, military personnel, or older adults (Horton, 2021).

Based on these definitions, the absolute minimum necessity for this discrimination to take place is an elasticity of demand.  While movie theaters are a good example, another useful scenario is taxi and ride share companies.  One can easily see the price discrimination through surcharges, or discounts, during times of high or low volume.  For example, someone living in NYC might encounter frequent “surge” pricing from a rides hare company.  Due to such high demand, customers are often willing to pay this higher price for the convenience the service offers.  On the flip side, in a less populated area, the same ride share company may offer significant discounts and reduced pricing models to encourage the use of the product through.  Knowing that customers are not willing to pay such a high price for the service, they will flex down the cost to the highest amount they are willing to pay.