Give two examples of price discrimination. In each case, explain why the monopolist chooses to follow this business strategy.
Give two examples of price discrimination. In each case, explain why the monopolist chooses to follow this business strategy?
Yusuf hussein mohamed
Give two examples of the price discrimination. In each case, explain why the monopolist chooses to follow this business strategy
Price discrimination is a business strategy used by monopolists to charge different prices for the same product or service to different groups of consumers. Let's examine two examples of price discrimination and understand why a monopolist might choose to implement them:
1. Airline Tickets: Airlines often practice price discrimination by offering different fares to different customers. They segment their market by charging higher prices for business travelers compared to leisure travelers. Monopolistic airlines target business travelers who are willing to pay more for last-minute, flexible, and convenient flights. On the other hand, leisure travelers who plan and book in advance are offered lower fares. This strategy is driven by the fact that business travelers have less price sensitivity and a higher willingness to pay due to their urgent travel needs and expense accounts.
2. Student Discounts: Many businesses, such as movie theaters, amusement parks, and tech companies, offer discounts specifically for students. This is a form of price discrimination aimed at capturing more demand from an audience with limited purchasing power. Monopolistic businesses recognize that students generally have lower incomes or limited budgets compared to other consumer groups. By offering lower prices, they can attract this price-sensitive market segment, increasing overall sales and building long-term customer loyalty.
In both examples, monopolists choose to implement price discrimination to maximize their profits. By charging different prices to different customer segments, they can extract a greater portion of consumer surplus and increase their revenue. It allows them to capture the willingness to pay of different customers, taking advantage of the varying price sensitivities and market conditions. However, it's important to note that price discrimination can also be seen as unfair or exploitative, as it may result in unequal access to goods and services based on socioeconomic factors.