Price Discrimination

PRICE DISCRIMINATION IS DEFINED as the act of selling the same product to different consumers at different prices even though the cost of supplying the product is the same. Price discrimination is widespread in the economy. Airlines charge lower prices for travelers who book seats well in advance or who are willing to stay over on a Saturday night in order to differentiate between recreational travelers who often have low budgets for vacations and business travelers who have a high willingness to pay for flights. Movie theaters give discounts to students, senior citizens, and matinee viewers. Frequent flyer programs, supermarket membership cards, store coupons and even college tuition financial aid packages are other common examples of price discrimination.

When a firm can set prices such that ...