Price is one of the most potent instruments affecting the global economy, different countries’ economic and social stability, as well as the life of millions of humans and even various species on the planet. Higher prices let people earn more and improve their living standards while they can also make certain resources scarce (Wheelan 14). Price discrimination is an important tool enabling sellers and producers to maximize their profits.
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Price discrimination is the practice when customers are charged different prices for the same products and services (Wheelan19). By using this approach, sellers can reach more buyers and ensure that all of their products and services will be sold. In this way, they minimize their potential losses and obtain a considerable array of loyal customers who have diverse buying capacity.
One of the most illustrative examples of price discrimination can be found in the airline industry. Airlines sell tickets at different prices aiming at several types of clients (such as business people or pleasure travelers). Business people are ready to pay more to get to their destinations at a specific period of time based on quick decisions (Wheelan 19). Airline tickets’ costs are higher if travelers buy them later, which is often the case with people doing business.
However, in order to ensure that all seats are occupied, airlines have to sell tickets for lower prices as well. The advantages of price discrimination for sellers are obvious as they can earn more. People pay differently for the same services, which may seem unfair if one does not consider all the benefits people receive when paying more.
Price discrimination is not common in airline industry as it can be found anywhere, even in people’s everyday life. For instance, when negotiating with a relative, people may ask different things from different individuals for the same favor. An example to illustrate this is asking someone to help with chores or some other tasks. A middle child, Sam, can take one dollar from an elementary-school brother, Will, for washing up, but he may get ten or even more dollars for the same work from the eldest brother, Harry. Sam may think that he will eventually have to wash up if they start arguing since the mother will not make the youngest do this job.
Therefore, Sam makes a reasonable decision to earn at least 11 dollars instead of nothing. For Harry, who has various things to do (such as going to a party), it is better to pay, even 10 or 20 dollars, instead of losing an opportunity to make his plans come true.
It is also possible to locate other examples in the media. It has been found that online shopping is characterized by a high level of price discrimination (Pedersen et al.). Companies tend to set different prices for customers based on their browsing history. Hence, companies identify their customers’ buying capacity with the help of certain online tools and data analysis. Companies try to charge more when they assume that the potential client needs certain services and places substantial value on them. At that, the services that can be regarded as less valuable or compatible with other ones can have lower prices.
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For instance, hotels charge buyers differently based on the geography of their browsers. People who were using US browsers were charged more compared to those using Canadian search engines (Pedersen et al.). Thus, hotels manage to maximize their profits and make sure that all their rooms will be occupied.
Pedersen, Katie. “How Companies Use Personal Data to Charge Different People Different Prices for the Same Product.” CBC. 2017. Web.
Wheelan, Charles. Naked Economics: Undressing the Dismal Science. W. W. Norton Company, 2019.