Why consumers do not pay the same price Price Discrimination Why consumers do not pay the same price

PRICE DISCRIMINATION Price discrimination is the business practice of selling the same good at different prices to different customers It is NOT considered a market failure Overall, society benefits from this practice For a Firm to price discriminate it must: have some market power (some price control) be able to identify & separate groups of consumers be able to prevent resale between consumers

Examples of Price Discrimination Coupons Cell Phone “Calling Plans” Shoppers who “buy in bulk”

End Result of Price Discrimination It raises profits for producers By charging different prices to customers The industry will increase quantity produced Example: more movie tickets are sold if seniors get discounts Economist feel price discrimination is generally efficient! Some consumers do pay more => but some also pay less as total quantity sold increases (i.e. the market gets bigger!)

“Would it bother you to hear how little I paid for this flight?” 5 minute American Airlines Video Clip (32min in DVD)

Examples of pricing practices in our Economy?