Posted at 10.01.2018
Discuss a good example of price discrimination.
Economics exists almost everywhere in our life. It performs an important role in detailing how the world works, how people respond in the society and how the federal makes decisions on guidelines to cope with the relationships with other countries. However, today I'm going to talk about something about "price discrimination", which, from my point of view, is the most sensible and efficient method for a company to maximize its income.
Price discrimination, by definition (on Google), is the action of retailing the same or similar product at different prices to different clients, in order to increase sales and profits. For me, selling the airline tickets is one kind of price discrimination.
Let's go through the air travel prices of four airline companies (American Airlines, Southwest Airlines, United Airlines and Delta Airlines) for example. I randomly choose an individual trip from Boston (BDL) to LA (LAX) on the weekday Apr 17th(Monday), the standard ticket charges for the four airlines companies are: American Airlines 300-500 dollars; Southwest Airlines 300-400 us dollars; United Airlines 200-400 dollars; Delta Airlines 400-600 us dollars. Then, I also look up prices for a single regular trip on Apr 21st, a Friday, the solution prices are clearly cheaper than that on a weekday: North american Airlines 300-500 dollars; Southwest Airlines 250-300 dollars; United Airlines 300-600 us dollars; Delta Airlines 200-350 dollars. By comparing those flights, we can find that the costs for the flights on the same day does not vary a whole lot from those four different air travel companies. The highest and minimum prices vary about 100 us dollars. Furthermore, while looking through the costs for your week from April 17th (Mon) to April 22nd (Sunday), we will get a occurrence that for all those air travel companies, the air travel prices from Monday to Saturday little by little become lower. Plane tickets on Sunday are still really cheap but have just a bit higher prices than that on Fri or Sunday (several a large number of us dollars higher). The priciest tickets in the week are on weekdays, especially an average weekday such as Monday or Wednesday. The flights on weekends are cheaper than that on weekdays. Plane tickets within better schedules are more costly as well-flights each day or in the day are more expensive than that early on in the morning or at night time. Of course, high grade flights are a lot more expensive than the standard ones because they may have greater space and better foods and drinks dished up.
Now you might have a question that "Why flights on weekdays are more expensive than that on weekends"? Generally, people travel on weekends so plane tickets on weekends have higher needs; however, flights on weekdays are for business goal and tend to be demand inelastic than plane tickets for tourists. Vacationers have a various selections of ways of vehicles (many substitutes) to attain their destination-by bus, by car, by teach. If the journey ticket is too expensive from their creativity, they may also easily change their destination for travel. Alternatively, if a businessman must go to anywhere to wait a meeting, she or he must go to that place on time for business revenue. It is not easy to improve a destination or give up journey because of high trip prices. Usually the ticket prices are paid for entrepreneurs by company, they don't really need to pay it themselves, so why not embark on a business trip? Business reaching is more important when compared to a traveling purpose. In this way, airlines companies effectively take good thing about demand elasticity to create airfare prices using price discrimination.
In contrast, journey prices on christmas sessions are constant in general, irrespective on weekdays or on weekends. For example, for the arriving Spring Period of time in March from March 11th to 18th, the solution prices of Delta Airlines are always around 300- 600 dollars-does not vary a lot. However they aren't as cheap as regular for weekends. In a word, they are a bit higher but not as expensive as that on weekdays either. Maybe for the reason that travelers' demand at the moment is more inelastic than normal but not as inelastic as that of entrepreneurs either. Trip is a time to venture out and have fun instead of staying at home and being bored to death. Most people will still choose to visit the destination they plan to go and enjoy the break in the action if the price does not surge too much.
The air travel industry is oligopoly-several big air travel companies; they continue enhancing airline flight services to contend with each other to get consumers while they still commercial on price setting up. The price collection of flight tickets does not vary a lot. The prices of flights with the same trip, on the same date and through the same time time of different air travel companies are roughly the same.
From my perspective, the most successful company is the one which may use different methods on price setting up in order to earn as much money as it could from different sets of consumers, which is the company that uses price discrimination. Since different sets of consumers have different levels of income and purchasing power, the only way for a business to do so is to set different prices of the same product (or virtually identical product) for different people groups-lower for the poorer ones and higher for the richer ones; lower for individuals who don't want it much and higher for those who want it; lower for stretchy demand and higher for inelastic demand. Companies may always want to market their products at a price nonetheless they need to lower the purchase price to catch the attention of consumers and also to are more competitive. That is why the price is lower for more stretchy demands-consumers have significantly more choices and substitutes. Somewhat, price discrimination is challenging to handle because if the company doesn't plan perfectly, it may face the problem that-all its consumer organizations buy the same product at its most affordable price and nobody buys at its higher prices. Also, there's another difficulty for price discrimination: those who don't need or don't want the merchandise can successfully buy the product at less price and re-sell it to others who actually need and want it for an exceptionally high price, which reveals that some consumers earn the profits that should formerly belong to the business. (for example, scalpers)
In synopsis, price discrimination is an extremely wise way for an organization that has some kind of market power in the industry, but not every company would work to make use of price discrimination to increase its revenue. Price discrimination will not be helpful for companies in perfect competition market because companies cannot bill any price they want-if their price is higher than the marketplace price, no one will buy their goods since all the goods are standard and there is no difference from products offering by one company than the other. And not every company can use price discrimination in the most efficient way-there are problems like scalping. Scalping is the most challenging problem for price discrimination because the company cannot prevent a consumer from trading the same product again with another consumer.
American Airlines https://www. aa. com/homePage. do
Southwest Airlines https://www. southwest. com/?clk=GNAVHOMELOGO
United Airlines https://www. united. com/ual/en/us/
Delta Airlines http://www. delta. com