Question

At concerts, seats/tickets that grant access close to the stage are generally priced higher than tickets farther away from the stage. Similarly, tickets at sporting events “close to the action” are priced higher than those farther away. What type of price discrimination is this? Explain.

Answer 1

Price discrimination is a strategy in which firms charging a different price to various customers for the same product or service.It is one of the competitive practices used by well established firms to make profits from differences in supply and demand from consumers.

There are 3 types of price discrimination policy:

1. First degree:- This type of pricing strategy takes place when firms can accurately determine what each customer is willing to pay for a specific product or service and selling that good or service for that same price.

2. Second degree:- Companies prices products or services differently based on the taste and preferences of various groups of consumers. Mostly used in warehouses and inventory stores.

3. Third degree :-Companies can understand the large characteristics of consumers more easily than the buying preferences of individual buyers. Third-degree price discrimination provides a way to reduce consumer surplus by catering to the price elasticity of demand of specific consumer subsets.

At concerts, seats/tickets that grant access close to the stage are generally priced higher than tickets farther away from the stage. Similarly, tickets at sporting events “close to the action” are priced higher than those farther away. Third degree price discrimination is used here because Consumer groups that may otherwise not be able or willing to purchase a product due to their lower income are captured by this pricing strategy, increasing profits of the firms.