Question

Price Discrimination is an interesting concept.

Discuss ONE of these two questions:

• Many restaurants have a mid-to-late afternoon “Early Bird Special” where they offer prices that are lower than at other times of the day.
  • Why do they do this?
  • What must happen for this practice to be profitable?

OR

• Many businesses lure customers with coupons. Finding, clipping and keeping coupons can be a hassle. Yet businesses continue to produce coupons and consumers continue to use coupons.
  • Do coupons really make sense for businesses?
  • What costs are incurred for businesses to offer coupons?
  • Do coupons really make sense for the consumer?

Answer 1

1.

A.

Many restaurants do it to lower the price of offers, because in the mentioned time slots, the number of customers visiting the restaurants are price sensitive in nature, hence offering them such an offer, increases the visits. Further,  the number of visits to the restaurant is already relatively less and this number can be increased when specific price offers are made to the customers during the given time slot. So, restaurants make the strategy of price offers go increase the sales.

===

B.

To make this practice to be profitable, the customers as a target audience should be conveyed to the offer made by the restaurants so that these customers can capitalize upon it. Further, the customers should be price sensitive in nature so that, they become very impulsive to the offer and they find it attractive to avail the offer. It will make the practice to be profitable.

Besides, there should be no any close substitutes present in the market of these meals offered by the restaurants. It will also make customers to come to the restaurants and earn profit.

===