Micro Week 3 DQR
This week we have been tasked to discuss the topic of price discrimination. More specifically is to provide the economic reasoning behind this strategy and if we think that it is fair or unfair. Price discrimination is when a seller puts different prices on their items for sale at different times depending on market conditions. The example I like to use is airline ticket sales. They have algorithms that automatically change the prices for tickets based on many factors such as interest, online traffic, as well as remaining time to departure. There is also what is called pure price discrimination where as the seller charges the maximum possible price to sell the item to make the most profit. (Twin, 2022)
The reasoning for the price discrimination is based on supply and demand principles. If the demand is high and the supply is low at a certain time for say movie sales. Then the supplier can raise those prices with discrimination knowing that the buyer will still pay them due to the demand signals. One economic principle that comes into play is the elasticity of demand. When the percent change in quantity demanded and how that effects and is effected by a change in price. This is one of the contributing factors that is analyzed during price discrimination. An example would be a retailer raising their prices simply because an event is in town. I do not believe this is justifiable and takes advantage of consumers and erodes the trust in the retailer. This is an interesting topic and I look forward to reading other posts to learn more.
TWIN, A. (2022, June 13). Investopedia. Retrieved from What Is Price Discrimination, and How Does It Work?:
There are a few key take away from the lesson regarding the policy of price discrimination. This is primarily practiced on the sellers viewpoint of charging certain groups more based on demographics or how a customer values a certain item or service. The main reason for this is to maximize profits through multiple markets. Some markets can charge more based on the customer base and in others a seller will charge less in order to sell their service or product. Some businesses like airlines, and movie theaters have a capacity to be able to serve and provide their service to the customer so they use these strategies to their advantage.
A perfect example is a hotel, the business needs to be able to cover the cost of overhead and still make a profit in the end. The salaries of employees, the maintenance and the property are costs that are associated with running their business. As a customer if you plan early enough you are able to find a room that is at a reasonable rate because the demand isn’t as high. The hotel starts to make a profit when customers start booking the month, or even week of because the demand is high and they have met their “break even” point. If there is still rooms available the day of the hotel might charge whatever they can just to book their service and pump profit margins.
A price discrimination that I personally view as unfair is something that my wife deals with on a daily basis. This is referred to as the “Pink-tax”, and it is a gender based price discrimination that is placed on female hygiene products across America. When looking for a razor she will end up paying more for on that is advertised towards women, over something I might purchase for myself. Research from done by the Midwest Journal of Undergraduate research states that “Women’s products are more than twice as likely to be priced higher than comparable men’s products to the degree that comparable products targeted to opposing genders are only equal in price approximately 40% of the time”. This is something that I’ve never really considered until getting married, now that dual finances are being managed. It is definitely unfair, especially because these products are deemed necessary and a basic human right.
Thank you, have a great week.
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