Question

Give an example of price discrimination or personalized pricing from your company or from your general experience. Explain the impacts on producers and consumers. Think about things like seller profitability, market share/market power, and be sure to think about the impact on consumer welfare/consumer surplus.

Answer 1

Cinema halls price discriminate using 3rd degree price discrimination on the basis of age of the consumer. Usually tickets cost more to the young and less to the senior citizens and the children. This allows cinema halls to increase their revenue and as marginal cost of cinema halls is effectively zero, so, their profits rise. With price discrimination more number of tickets are sold, so, consumers are better off and because profits rise, so, producers are better off too. This strategy will also improve market share of the cinema hall practicing this because different aged people will prefer this cinema hall over the others as the princing is specefic to the elasticities of each age group. Also, the increase in profits of the cinema hall are partially because they acquire some of the consumer surplus, thus, consumer surplus decreases.

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