When many people hear the word discrimination, they immediately think of race or gender discrimination which...

When many people hear the word discrimination, they immediately think of race or gender discrimination which is illegal in the USA. Price discrimination, however, is legal and has nothing to do with race or gender. By definition: Charging different people different prices is legal as long as it does not use other forms of discrimination as the basis of the pricing model. Please note that prices must be made available for all to see and no two individuals making a purchase at the same time and same place are charged different prices unless qualifying criteria are met.

Describe a business that uses price discrimination, the pricing model, and how it is not considered illegal (meaning how it is legal to do).
Are there situations in which price discrimination is unfair and should be considered illegal (remember to not confuse the word discrimination with price discrimination.
Lastly, evaluate the profitability of using different prices for different people. That would mean that some people are paying more, while others are paying less. This would suggest less profits, so why not just charge everyone the same high price??? Explain your understanding of how price discrimination works to maximize profits for the business.

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Expert Solution

Price discrimination is charging different price to different customers of the same company for similar products or services.

For example Airline industry. In airline industry passengers pay different price for the tickets. The difference is in the location of the seat in the plane. This is fair, since the person can spend and purchase the additional service depending upon the income level or spending capacity of the passenger. At the same time the one who does not have more spending capacity can still afford to travel due to the low price tickets and reach the desired destination in less time. Offers for both customers are designed differently depending upon their last ticket purchase and the frequency of travel. Loyalty programs are also designed in a different way. Due to this, the person who earns less gets the most of the deals fitting his pockets and the person who has more spending capacity gets the most of the deals fitting his pockets and needs.

Similar patterns and deals are also used by travel and tourism industries and banking sector with credit cards and loan facilities.

jeff jeffy answered 2 hours ago

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