Sub: Economics Topic: Micro Economics
Question:
price discrimination by firms.
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Briefly describe how these firms would price discriminate: department stores, airlines, movie
theaters
Solution:
Airlines:
It is well known that the airline industry has practiced price discrimination for many years.
airlines price discriminate in several distinct ways—including offering lower prices for
customers who stay over on Saturday nights, advance purchase discounts, roundtrip
discounts, and point of origin discounts. Airline price discrimination represents an attempt to
charge the business traveler more than the leisure traveler, because business travelers typically
have less elastic demand. By offering different prices through Saturday night stay-over
restrictions, advance purchase discounts, roundtrip discounts, and point of origin discounts,
airlines are attempting to have, consumers sort themselves between business and leisure
travelers.
The observed price discrimination in the airline industry is likely to be largely due to second
degree rather than third degree price discrimination.
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