Question

4. Which of the following pricing practices represents price discrimination? Explain.

a. Local businesses in a small college town offer a 10% discount to anyone showing a student ID card.

b. Fred’s Fridges advertises a one-day sale on refrigerators. The ad specifies that no phone orders are accepted and that the buyer must transport the refrigerator.

c. A hardback copy of the last Harry Potter book sold for $30 at an independent bookstore; but for $25 at the local outlet of a national bookstore chain.

d. Freshman tuition and fees at Penn State-University Park for academic year 2018-2019 was about $18,000 for Pennsylvania residents and $35,000 for out-of-state students (a pricing pattern that is typical of state universities.)

Answer 1

a. Local business in a small college town offer a 10% discount to anyone showing a student ID card

This is not price discrimination. The college students are being given a small discount since they have to take care of a good portion of their day to day expenses. Hence, a discount to them helps. Further, since it is a small town the no of students in the college are a good trade off for the price discount being offered

b. Fred’s Fridges advertises a one-day sale on refrigerators. The ad specifies that no phone orders are accepted and that the buyer must transport the refrigerator.

This is again not price discrimination but a special limited period offer. This is usually done to take care off excess stock and also since the buyer is reponsible for transporation, the discount is getting offset to an extent. Also no phone orders are expected to ensure that the buyer immediately in need to buy comes to the shop and carries the refrigerator

c. A hardback copy of the last Harry Potter book sold for $30 at an independent bookstore; but for $25 at the local outlet of a national bookstore chain.

This is an example of price discrimination. The independent bookstore does not operate under any chain and hence has limited capacity to offer discounts. The local outlet of a national bookstore chain has a brand that can offer discount and undercut the independnet bookstore.

d. Freshman tuition and fees at Penn State-University Park for academic year 2018-2019 was about $18,000 for Pennsylvania residents and $35,000 for out-of-state students (a pricing pattern that is typical of state universities.)

This is a debatable scenario and would classify as price discrimination purely on the basis of the fact that the facilities offered to Pennsylvania students and out-of-state students are exactly the same. Hence discrimination in terms of pricing may result in other state students not travelling to Pennsylvanai