So, Is Price Discrimination a Bad Thing?
Believe it or not, price discrimination does have benefits. In the end, sellers can sell more goods by using price discrimination than if they sell only at one price. The extra units sold create additional profits for the firm (assuming the goods are sold above the cost of production). In short, sellers can expand the market for their product by offering it at different prices to different consumers.
Buyers also benefit from price discrimination. Those with lower reservation prices would be excluded from buying the good if the rebate were not offered. In this case, some buyers whose reservation price is at least as high as the discounted price-and are willing to jump the hurdle-benefit from price discrimination. Of course, some buyers with high reservation prices might pay more than if the firm had not chosen to price discriminate. If the seller were to pick one price rather than two, the single price would probably be lower than the highest price under price discrimination. In our scenario, instead of price points at $100 and $80, perhaps the single price would have been $95.
Choose one of the following common marketing tactics and discuss how it can be used as a hurdle:
- Special sales offering discounted prices from 4 a.m. to 6 a.m.
- Books released as hardcover copies for $40 when first published and then as paperbacks for $8 one year later
- Movie openings in premium theaters, then discounted theaters, then DVD release
- Commercial airlines with restricted supersaver airfares