Corporate discount strategies and customer pricing

¶ … Consumer Discounts

Although it may seem counterintuitive, sometimes it is in a company's best interest to offer discounts to select groups, such as senior citizens and students, who would not otherwise become patrons of the establishment, were not such discounts available. Because such items are not necessities, poor students and seniors might not purchase movie and museum tickets at all. The availability of such discounts will no doubt encourage these groups to go venues that give special offers to their select group, as opposed to those venues that do not.

Railroad travel is a particularly interesting case of discounting, because while gradated fares affect all customers, depending on when they travel, only seniors and students pay the same low fare, even during peak commuting hours. Presumably, these groups have some choice in whether they travel by rail during peak hours, as opposed to adult commuters who must travel to their places of employment at a particular time. Non-working students and adults are more elastic in their demand for rail transport than working adults in terms of how and when they travel.

According to the article, this type of discounting is possible because transportation companies possess an element of monopoly power. When traveling by rail and most of the consumers lack a certain element of choice, except for the discounted groups, thus the non-discounted groups are unlikely to protest that they are being taken advantage of by the rail road, because they have no choice to travel other than during peak hours. However, other companies that lack such monopoly power, such as restaurants, also offer special meals at lower prices for seniors. In the case of the food industry there is a great deal of arbitrage on the consumer's part, as many other options exist that are cheaper, if not necessarily more desirable than restaurant dining. In the case of discounts offered to special groups by non-monopolized industries, the fact that seniors might not dine out at all is the incentive to offer a discount, as is the desire to fill the restaurant during off-peak hours, when customers who can pay in full are still at work. Thus, the development of the 4-6pm Senior Citizen "Early Bird" special for early diners who eat smaller portions, and do not mind dining from a limited menu.