Price Discrimination Is Simply Modifying

Price discrimination is simply modifying the prices of goods without the market price completely dominating the process. An example would be when an airline company uses price discrimination based on peak and off-peak times, charging more for when airline congestion is at its highest demand. Thus, the airline is partially protected from the efficiency of the market. There are many advantages for firms when using price discrimination. One is that price discrimination widens the profit margin in some circumstances.

This garners more profits for the firm granting it more leeway in using its capital for further research, which will benefit the consumer. (Economics Help) Setting the price when using price discrimination involves a few factors. First, price discrimination must be possible, obviously.

This means that there must be, "imperfect competition," meaning that the firm is both a price maker and a "downwardly sloping demand curve," "separat[ion] of markets" so that different markets cannot mix, and "consumer groups must have elasticities of demand.," so that certain groups in the market have different spending abilities. (Economics Help, para. 3) Second, most firms' driving motivation is the maximization of profits, and thus the driving motivation of price discrimination is the maximization of profits.

According to the article "Price Discrimination," the way to set prices so that profits are maximized is to set up the equation where marginal costs are equal to marginal revenue. Now enter into this equation the price of the good or service and the output and where MR = MC is where the profits are maximized. (Economics Help) Price discrimination is not necessarily a heartless extortion of consumer's hard earned money.

Price discrimination is a double-edged sword, raising the price on some means that others are paying less for the same goods or services. In other words, less wealthy individuals will be able to benefit from price discrimination. and, as mentioned before, discrimination allows for a more flexible reallocation of capital, benefiting the customer by increasing research and development of other goods and services.

In the article "Taken to the Cleaners?" The author presents a real world case where dry cleaners are seemingly arbitrarily using price discrimination to mark up the price of dry cleaning for women's blouses vs. men's shirts. This is definitely a third-degree price discrimination, where different consumer's pay different prices. There are two separate markets, one composed entirely of men (or women who wear men's clothes), and the other composed entirely of women.

Each is forced to pay different amounts for essentially the same service, thus this is price discrimination of the third degree. (Taken to the Cleaners?, 1998) There are many real life examples of price discrimination. Take, for instance, the ubiquitous feature of most bars and nightclubs, "Ladies' Night," which offers discounts for females. According to Spiritus-Temporis.com, the purpose of a Ladies' Night is not to increase revenue, but to fix the inequitable gender balance present in most.