| Price discrimination is the capability of the seller to | | | | capturing all segments of a market.EasyJet and British |
| supply same products at different prices. The prices of | | | | Airways have different approaches to selling the |
| the same product might vary during the day period as | | | | same product for different prices, both are examples |
| in case with the ticket prices which are usually higher | | | | of third-degree |
| during the busy hours. The price can also be different | | | | price discrimination. The budget airline 'Easy Jet' sells all |
| when sold at different places. It can also depend on | | | | their |
| the income of the customer, for example pensioners | | | | seats over the internet - the earliest booked seats |
| usually pay less.Price discrimination can be grouped into | | | | are the cheapest. |
| three categories or types- | | | | Then as demand rises and supply becomes more |
| First-degree discrimination where a firm charges each | | | | finite, the prices are |
| consumer the | | | | raised, so prices are discriminated with passengers on |
| maximum they are prepared to pay for the product. | | | | a given flight |
| This is evident at | | | | often paying very different prices for their seats. The |
| stalls or street sellers where the customer bargains | | | | traditional |
| directly with the | | | | carrier British airways, on the other hand sell at a high |
| seller to bring the price of a product down to one they | | | | price |
| find | | | | initially, with price discrimination offered on different |
| acceptable.Second-degree discrimination where the | | | | ticket |
| prices charged to consumers | | | | categories (first class, club class and economy class). |
| vary according to the amount they purchase. This is | | | | But the prices |
| commonly seen in | | | | may also drop dramatically for standby seats sold |
| the concept of bulk buying, when greater quantities | | | | close to departure |
| bought results in | | | | time as British Airways makes the effort to fill seats |
| lower prices.Third-degree discrimination operates | | | | that would |
| when consumers are grouped into | | | | otherwise be vacant. The competition between |
| two or more separate markets with different prices in | | | | budget and traditional |
| each market. | | | | airlines is an example of how consumers can benefit |
| This is the most common type of price discrimination, | | | | from a competitive |
| with student | | | | market, with the advantages of low prices and more |
| discounts, pensioner fares and child prices being good | | | | choice.Peak load pricing is popular in much of the |
| examples of | | | | transport industry, where |
| this category.When given a number of separate | | | | companies try and redistribute usage to off peak |
| markets with different identifiable demands, a | | | | periods by putting up |
| discriminating pricing policy is at least as profitable as a | | | | the price at peak times. This can be seen as unfair by |
| non-discriminating one. By discriminating prices, | | | | many travelers |
| producers are | | | | who need to travel at certain times of day e.g. |
| appealing to a wider section of the market, selling | | | | commuters getting into |
| more products and | | | | central London by 9am, but conversely, it is a benefit |
| therefore increasing turnover, and in turn, profits, which | | | | to those who |
| are then | | | | can plan their journey times to make use of cheaper |
| available to reinvest within the company.There are | | | | periods.Predatory pricing can be seen as a form of |
| many ways in which consumers can benefit from | | | | price discrimination when |
| price | | | | new product lines are launched - a popular method to |
| discrimination, in the case of second degree | | | | quickly and |
| discrimination consumers | | | | effectively capture a large customer base is by |
| can benefit through bulk buying by getting more for | | | | introducing a product |
| less - resulting | | | | at a lower price than its closest competitor. Therefore |
| in a lower average cost. Companies have found | | | | securing |
| ways to appeal to this | | | | customers before raising the price. In this way |
| market by using special offers, such as Boots' "3 for | | | | companies may well |
| 2" offers. The | | | | make a loss on the first products that they sell - but |
| customer benefits by getting more products for their | | | | at least their |
| money, and Boots | | | | name is being recognized.One of the most recent and |
| benefits by shifting products that they have selected | | | | interesting methods of price discrimination |
| more quickly, | | | | is in the case of Coca-Cola and their new line of |
| they increase turnover but at the cost of a lower | | | | technologically |
| margin per unit. | | | | intelligent vending machines, which are programmed to |
| Economies of scale come into effect here, it costs | | | | change the price |
| Boots the same for | | | | of a can of coke depending on the outside |
| its shop assistants to put 3 products through on the till | | | | temperature. So, when it is |
| as it does | | | | hot outside a can of coke is more expensive, but if |
| 2. The company benefits because they shift more of | | | | cold then price is |
| a single product in | | | | lower. In this case the groups of buyers are |
| one single purchase.Companies such as Makro's have | | | | segmented by the outside |
| also benefited by adopting this form of | | | | temperature. The company is charging a higher price |
| discrimination - opening up a warehouse full of | | | | to customers at a |
| products but having a | | | | time when they will place a higher value on the |
| minimum purchase price (e.g. £40) per customer. | | | | product, whilst |
| Quite often, in second | | | | charging less if their demand (or thirst level related to |
| degree discrimination, companies place restrictions on | | | | the |
| their special | | | | temperature) is lower. The producer is cleverly |
| offers, these restrictions normally work in the | | | | discriminating where |
| producers favour, for | | | | demands vary with the weather, and therefore |
| example - reduced entry to a nightclub is only valid | | | | increasing revenue. |
| before 11pm or in | | | | Benefits to the consumer are less clear in this |
| the case of train tickets, purchases must be made | | | | example unless the |
| 7days in advance in | | | | average price of coke is lower.Modern technology |
| order to gain the lower price.Certain economic | | | | has made price discrimination easier for companies |
| conditions are necessary for price discrimination to | | | | through the internet - websites such as recognize the |
| take place. Firstly, the seller must be able to set their | | | | same |
| own price, | | | | customer when logging into the site and therefore can |
| therefore it is impossible in a market of perfect | | | | immediately |
| competition where | | | | present them with a book that they recommend they |
| sellers are price takers (e.g. agricultural commodity | | | | buy, at a different |
| markets). The | | | | price that what they would charge to another |
| markets or consumer groups involved must be | | | | customer logging in.The main advantage to a producer |
| separate with no reselling | | | | of using price discrimination is that |
| of products must taking place. Demand elasticity must | | | | it allows them to increase turnover and thus profits. |
| be variable in | | | | This can be |
| each market, so, in markets that are sensitive to price | | | | shown in the following graph, which illustrates third |
| rises, demand | | | | degree |
| is less elastic, and therefore a higher price will be | | | | discrimination -So, if the firm is to sell 250units without |
| charged.The elasticity of demand of a market is highly | | | | price discrimination, it |
| influential upon how a | | | | must charge one set price of P1. The total revenue is |
| producer decides to price a product. Sellers can | | | | shown in the |
| charge low prices | | | | blue shaded area. However, if the firm can sell 200 of |
| which results in higher consumer numbers, with a | | | | those 250 at a |
| larger market volume. | | | | higher price of P2 it will gain the red area in addition to |
| Alternatively they could sell at a relatively high price | | | | the rest.The main benefits to the consumer of price |
| appealing to | | | | discrimination are - price |
| less consumers, therefore sell less, but receive a | | | | discrimination is likely to increase output and make the |
| higher marginal | | | | good or |
| revenue on each product. Both methods have | | | | service available to more people and the increased |
| advantages - but if you can | | | | competition in the |
| appeal to both of these sectors of the market at the | | | | market leads to lower prices and more choice. |
| same time, then | | | | However, higher profits |
| you benefit from a bigger overall turnover and a | | | | for producers could be seen as an undesirable |
| resultant greater | | | | redistribution of income |
| profit. This is illustrated in the case of third degree | | | | in society, especially if the average price of the |
| discrimination. Train companies offer the same trip to | | | | product is raised.The article was produced by the |
| the same | | | | member of |
| destination at the same time for a variety of prices - | | | | Sharon White is a senior writer and writers consultant |
| including | | | | at term papers. Get some useful tips for thesis and |
| student prices, child fares, OAP fares and adult fares, | | | | buy term papers . |
| therefore | | | | |