Economics

The textbook discusses price discrimination in Chapter 15 (section 15-4). What is price discrimination? Give an example of effective or ineffective price discrimination you see online or in your community. Explain why the monopolist chooses to follow this business strategy.

Note: To earn full credit for this graded discussion, post at least three times. First, the initial post should be substantial (containing at least 200-250 words)

Any use of outside resources, textbook readings, as well as any additional references that you have included in your discussion requires that you cite and reference your sources in APA format.

ANSWER

Price Discrimination

Price discrimination strategy is a marketing strategy, to sell the same product at a different price to different segments of the market (Alhabeeb, 2019). Therefore, this is a business strategy used to charge customers different prices for similar products and services based on what the seller believes the customer can agree on. The main goal is to increase revenue by charging more for a product that was previously sold at a lower price or increasing sales volume by charging less for a product that has been overpriced in the past. Price discrimination can only be successful if there are large numbers of consumers who fall into different groups with significantly different demand elasticities (Alhabeeb, 2019). In practice, this implies that firms often use heavy marketing to identify these segments and convince them that their products are worth their higher price.

Cineplex is an entertainment company that relies on a price discrimination strategy in selling tickets. For instance, they sell tickets for the same events at different prices depending on the age demographic and difference in days. Adults are charged the highest while children and seniors get a fair price for their tickets.

Monopolists have control over demand, price, and supply decisions and thus can charge different prices for different buyers for similar products and services. Monopolists choose the price discrimination strategy since it maximizes total revenue and profit (Li and Shuai, 2019). When a firm has monopoly power, then it chooses the strategy that enables them to extract the most surplus from consumers and other producers. Monopolists can do this because they face no competition and can influence the market price.

In summation, price discrimination strategy enables sellers to capture more consumer surplus than possible under perfect competition. This can be seen when one consumer group gets charged a lower price than another consumer group would pay given the same good service, hence showing that they would be willing to pay more for that good or service. Price discrimination benefits the firms as they can increase their revenue and profits by charging different prices for similar goods and services.

References

Alhabeeb, M. J. (2019). Price Discrimination as a Marketing Strategy. International Journal of Marketing Studies, 11(4), 1-15.

Li, Y., & Shuai, J. (2019). Monopolistic competition, price discrimination, and welfare. Economics Letters, 174, 114-117.