Question

A local restaurant giving a 10% discount to college students is an example of:

	first degree price discrimination
	second degree price discrimination
	third degree price discrimination
	two-part pricing

Answer 1

Third Degree Price Discrimination involves charging a different price to different groups of consumers for the same good. These groups of consumers can be identified by particular characteristics such as age, sex, location, time of use.

In the real world, third-degree price discrimination is quite common. For a firm to practise price discrimination it requires:

• Ability to set prices. Some market power.
• Ability to segment different classes of consumers (e.g. rail card to prove you are a senior citizen)
• Ability to prevent resale. E.g. stop adults using student tickets.

Some example of third degree price discrimination are -

• Students frequently get a 10% discount in shops and restaurant
• Local restaurant offering 10% discount to students and NHS workers
• Pensioners get discounted bus and train tickets. up to 33% cheaper
• Book in advance. If you book train tickets in advance, usually they are much cheaper than buying on the day. This is because customers who buy in advance are usually more price sensitive. They have time to look for alternatives. Businessmen who buy on the day, probably have higher income, but also consider train journey more of a necessity – therefore, their demand is price inelastic.
• A nightclub may offer a discount to female consumers on certain nights.

Hence (C) part is a correct answer