Question

Explain whether or not the following are examples of price discrimination.

a. A cell phone carrier offers unlimited calling on the weekends for all of its customers.

b. Tickets to the student section for all basketball games are $5.

c. A restaurant offers a 20% discount for customers who order dinner between 4 and 6pm.

d. A music store has a half-price sale on last year’s guitars.

e. A well-respected golf instructor charges each customer a fee just under the customer’s maximum willingness to pay for lessons.

Answer 1

Option b, Option c and Option e are the examples of price discrimination .

Explanation : Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to. In pure price discrimination, the seller charges each customer the maximum price he or she will pay.

Option a : This is not an example of price discrimination since it is targeting all of its customers , no one group in particular.

Option b : This is an example of price discrimination as it is targeting only the students attending the basketball games.

Option c : This is an example of price discrimination as it is targeting only customers who eat dinner between 4 pm and 6 pm. Here price discrimination uses to offer special discounts to customers who eat dinner between 4 and 6 pm. This is done to increase sales and revenue.

Option d : This is not an example of price discrimination as it charges half price for the last year guitars in the music store. Price discrimination occurs when identical goods are sold at different prices from the same provider.

Option e : This is an example of a pure price discrimination as the golf instructor charges each customer the maximum fee he is willing to pay for lessons. Perfect Price discrimination exists when the seller charges the highest price each customer is willing to pay for the product rather than go without it. That is , the monopolist is able to extract all consumer surplus from the buyers.