5 asssignments 3rd week

Price discrimination is the practice of a firm selling different units of a good or service for different prices. Firms engaging in Price discrimination must be able to differentiate and categorize different groups of customer’s in order for price discrimination to be successful (Farnham, 2013, p.267). Likewise, firms engaging in price discrimination must have some level of market power that allows the firm to charge a price that exceeds the costs of production, additionally the product or service cannot be resold (Parkin, 2012,p.309). It is noted that individuals value goods differently, any price that is lower than an individual’s maximum willingness to pay results in consumer surplus for the respective individual (Parkin, 2012, p.109). Fast food restaurants like McDonalds often provide senior discounts on coffee and other drinks for their older customers; from a personal perspective I remember very distinctly when I was a kid, my grandfather always ordering a senior diet coke when we went to McDonalds. Furthermore, these respective senior discounts offered by McDonalds and other restaurants are a form of legal price discrimination. Many seniors have lower levels of income, according to the American Psychological Association, a majority of seniors receive half of their income from Social Security benefits(Fact Sheet: Age and Socioeconomic Status, 2010), as a result of this notion, seniors may have a lower income levels than many of McDonald’s other customers. Lower levels of income result in seniors likely having a lower maximum willingness to pay for the same products from McDonalds than their other customers. The price discrimination in the form of a senior discount allows for the restaurant to more effectively capture more price sensitive customer groups, and turn that into an economic profit (Parkin, 2012, p.309). Similarly other fast food restaurants like Arby’s also offer discounts for students, students like seniors often have lower levels of income (Sineriz, 2019).In conjunction with college students generally having lower levels of income, more recently there has been an increase in undergraduate students from lower income families. The Pew Research Center notes that the number of students from lower income families is on the rise amongst undergraduate students (Fry & Cilluffo, 2020). These respective students are likely more price sensitive than Arby’s other groups of customers, by offering this discount for college students Arby’s is able to more effectively capture a larger group of college students, than if they didn’t offer the discount and can in essence more effectively maximize their profits. ========================================== For this post, I chose to discuss: iii “Retailers using coupons, often sent electronically to “special customers”. Many retailers use coupons are a reward for past purchases and to encourage repeat customers. Coupons are very effective way to price discriminate. Retailers often send targeted coupons to special customers based on past purchases. For example, a grocery store will send coupons for products that are often purchased by a customer to encourage them to return to that store. They track this information based on the purchases made in conjunction with a loyalty card. Often, when a product has an eligible coupon, the company will raise the price, so that the customer receives a discount, but the company still makes a sale/profit. Increased traffic into the retailer is another benefit of coupons. According to Business Insider, 63% of people say they have bought something they do not need, because they had a coupon. Also, coupons tend to make it harder to stay on budget and you tend to spend more with coupons versus without using them. (Olito, 2019) The use of coupons by retailers for “special customers” are also based on signing up for “member access” on a website or simply providing your email address at the point of sale.