Question

2. Student pricing at the movie theater is a common example of third degree price

discrimination. What is it about students, as compared to everyone else, that makes

movie theaters want or need to charge them a lower price? Why is it important for

movie theaters to make students show their IDs? Additionally, suppose a student could

buy as many tickets as they wanted with their ID. How might that limit the theater’s

ability to charge two drastically different prices for students and non-students?

Answer 1

In third degree price discrimination, the monopolist charges different prices to different groups of consumers for the same good. Students have lower disposable income as they are usually not earning money and even if they are it is from a low paid part time job. So they dont have a lot of money to spare on movie tickets. However, if the theater does not lower the prices for students then it may happen that the seats go vacant and thus it is much better to sell lesser priced tickets to students than letting the seat go vacant.

It is important for movie theater to check student id because otherwise even non-students could pass themselves off as students and try to benefit from the lesser price. This would reduce the monopolists profit.

If a student is allowed to buy as many ticket as he pleases then he would buy these tickets and then sell them at a much higher prices to the non-students. This would again affect monopolists profit. Thus, they would prefer not to charge students and non students separately.l