Transcript SS.912.E.1.8

Standard 1
Understand the fundamental concepts
relevant to the development of a
market economy
SS.912.E.1.8
Explain ways firms engage in price
and nonprice competition
What is price discrimination?
The practice of selling the same good to
two or more groups of people at different
prices
Who can price discriminate?
Any firm that
– (1) has a downward-sloping demand curve
– (2) can separate its customers into at least
two groups
– (3) can prevent customers from re-trading the
product
Why do firms price discriminate?
To increase profits
How do firms price discriminate?
By setting a relatively high price for those
customers with inelastic demand and a
relatively low price for those customers
with elastic demand
Story from Economics is Everywhere
Disney World offers tourists a three-day pass that
costs several hundred dollars. But Floridians can
obtain the same pass for a bit more than $100.
This is a great example of demand-based price
discrimination. The cost to Disney of letting a
Floridian or an out-of-stater into the park is the
same. But the out-of-staters, having traveled to
Florida, often with the sole purpose of visiting
Disney World, have a very inelastic demand,
while the Floridians have lots of other ways they
can spend time while at home. Their demand is
more elastic. It is easy for Disney to separate the
two markets. All it needs to do is to ask those
people seeking to purchase the cheap tickets to
show a Florida driver’s license.
Q: Is there any way you can get around Disney’s
clever way of separating the markets for these
discount passes?
Graphs:
discrimgraphs.pdf
Nonprice discrimination
Location
Hours of operation
Service
Warranties/repairs
Amenities
Types of payment accepted