This paper examines the economic rationale behind consumer discount strategies targeted at senior citizens and students. It explores how offering reduced prices to price-sensitive groups — who might otherwise forgo purchases entirely — can benefit businesses across various industries. The analysis covers railroad fare structures as a case of graded pricing backed by monopoly power, and contrasts this with competitive industries like restaurants, where early-bird specials serve a similar function. Central to the discussion are concepts of demand elasticity, arbitrage, and the incentives that drive selective discounting in both monopolistic and competitive market environments.
The paper demonstrates comparative economic analysis: it identifies a common business practice (targeted discounting) and systematically compares how and why it functions differently across two distinct market types — monopolistic transportation and competitive food service. This approach grounds abstract economic theory in real-world examples, making the argument accessible without sacrificing analytical rigor.
The paper opens with a general claim about the strategic value of discounting for underserved consumer groups. It then narrows to the railroad industry as a detailed case study involving fare gradation and monopoly power. Finally, it broadens back out to contrast the railroad model with competitive industries like restaurants, concluding with the "early bird special" as a practical synthesis of both demand-management and consumer incentive logic. The conclusion is embedded in the final paragraph rather than set apart as a standalone section.
Although it may seem counterintuitive, it is sometimes 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 without such incentives. Because items like movie and museum tickets are not necessities, price-sensitive students and seniors might not purchase them at all without a discount. The availability of targeted price discounts will, in all likelihood, encourage these groups to patronize venues that offer special pricing, as opposed to those that do not.
Railroad travel is a particularly interesting case of discounting. While graded fares affect all customers depending on when they travel, only seniors and students pay the same low fare regardless of the hour — including during peak commuting times. Presumably, these groups have some choice in when they travel by rail, unlike adult commuters who must reach their places of employment at fixed times. Non-working students and seniors are therefore more elastic in their demand for rail transport than working adults, both in terms of how and when they travel.
This type of discounting is possible because transportation companies possess an element of monopoly power. When traveling by rail, most consumers lack meaningful choice about when they travel — except for the discounted groups. As a result, non-discounted passengers are unlikely to protest that they are being taken advantage of, because they have no practical alternative to traveling during peak hours.
You’re 55% through this paper. Sign up to read the full paper.
Sign Up Now — Instant Access Already a member? Log inAlways verify citation format against your institution’s current style guide requirements.