Price Discrimination

Question 1

What is price discrimination?

Answer 1

Price discrimination is where businesses charge different prices to different groups of consumers for the same basic good or service, e.g South-west trains.

Question 2

How can businesses split people up to price discriminate?

Answer 2

1) Time - When people buy or use that service e.g. peak and off peak travel
2) Personal characteristics - Disabled, students, pensioners, children.
3) Geographical basis - charging different prices according to where you are selling it

Question 3

Why do businesses price discriminate?

Answer 3

What businesses will try to do is charge different groups the maximum price they are willing to pay. For some consumers, they will have no alternative but to pay the higher prices, e.g. Commuters. However, if using a service for leisure purposes, people are more flexible ad demand tends to be elastic. To encourage use, companies will charge lower prices. e.g. train companies.

Question 4

Advantages of price discrimination

Answer 4

• Some consumers end up paying less
• Help increase a businesses profit
• Encourage more people to travel off-peak, so its less busy at peak times

Question 5

Disadvantages of price discrimination

Answer 5

-Some consumers will end up paying more - usually people who have no choice but to pay for it

Question 6

What might not be price discrimination?

Answer 6

• When they re providing a different service, e.g. first class vs business
• If the price difference if because of different costs - e.g. different costs of the some product in different countries due to export/transport costs.