Question

Price discrimination

Give a real life example (2 examples) of the third-degree price discrimination (different from anyexamples in the lecture or in textbook). How the consumers are selected into one or another price group. Explain, which of the group of the consumers has a more elastic demand, and why.

Answer 1

Third degree price discrimination is the most common form of price discrimination. In this different prices are charged for the same product in different segments of market. The markets are segmented on the basis of age, gender, location, economic status, etc.

Examples of third degree price discrimination:

Senior citizens and students are given discounts when they travel by air or by railways. Here the market is segmented on the basis of age. Here the consumers who don't fall in the category of students and senior citizens have a relatively inelastic demand. The consumers who fall in the category of students and senior citizens have a relatively elastic demand. Students' and senior citizens' demand is more dependent on the price. They usually don't have to travel for official purpose and travel mostly for leisure. Also they usually don't earn. So if the price will be more, they will travel less and if the price will be less they will travel more.

2. On ladies night in a pub, ladies are given drinks on discount whereas men have to pay the full price for the same drink. This is price discrimination on the basis of gender. Here men have a relatively inelastic demand and ladies have a relatively elastic demand. This is because many ladies don't drink and even if they drink, they don't drink as much as men do. Also they usually don't spend a lot of money on drinks. So if the price of drinks will be less then they will drink more and viceversa.