THE CONCEPT OF

PRICE
DISCRIMINATION
My understanding of Price Discrimination was pretty basic. Before I
took this course, I thought that the only reason price discrimination
exists is to clear out stocks. The concept of price discrimination is
deeper than my basic understanding. It is a process of not just getting
the stocks cleared but how they make it happen. I always thought that
going on sale or any type of price discrimination is a loss for the firm
but I just learnt that this is a way to maximize the profit.

A company has to know their market well. They have to know who
their customers are, their spending behavior, their affordability and
where the company’s product stands in their view in order to price
discriminate between customers.

I researched further and found more about the types of price

discrimination:

1. Personalized Pricing: It refers to selling to each customer at a

different cost according to the likes and preferences of the
customers
A great example of personalized pricing is used by the hotel
website Orbitz. The company uses data such as zip code, type of
browser, and even type of device to determine the spending
threshold of a website visitor. Then they display prices for each
user depending on the data. For example, Mac users can expect
to see higher prices for hotels on Orbitz than their PC-using
counterparts

2. Product Versioning: It refers to creating a different product

line similar to a menu card in which more options are given for
the same product with minor changes in order to sell them at a
differential price.

A perfect example that I could think for Product versioning is the

Automobile industry. Almost every Automobile industry releases
 a new and different version of the same model with different
pricing to cater to the affordability of every customer. They are
actually trying to maximize their profits while trying to capture
every customer group that they possibly could. Automobile
industries also price discriminated based on the geography.

3. Group Pricing: It refers to creating Sectors or markets in which

a particular price will be charged to that market.
In this, the wholesalers of the goods and services may charge a
differential pricing strategy to the retailers who will buy in bulk
as compared with those who will buy in small quantities thus
offering a hefty discount to the former for bulk purchases

4. Complete Discrimination: It refers to the style of costing

where the customer’s marginal benefits are equal to
the marginal cost of the product.

This kind of price discrimination is typically seen in membership

programs. For example, Customers of the Sony Playstation plus
can get many games at a discounted price when compared to
other Playstation customers. Similarly, Amazon prime customers
get exclusive services when compared to the regular customers
of Amazon.

5. Direct Segmentation: It refers to the strategy when the seller

segments the customers on the basis of their age, sex or
preferences
A typical example of this type of discrimination is seen in pubs
and bars where the women are sometimes given access into the
avenue at free of cost while the men are charged at pretty high
costs. Age discounts are also part of direct segmentation. The
 popularity of age discounts is that it is relatively easy to segment
the market. Also, different age groups generally have different
elasticities of demand. Students and OAPs have lower income
than working adults and so are more sensitive to changes in
price.

6. Indirect Segmentation: It refers to the strategy when the

seller segments the customers on the basis of package size, the
quantity of the usage.
In the case of a flat, the per square feet rate for one area may
be very expensive due to the location advantage while the same
flat if located in another area may face a lower rate due to the
location. Example: A 400 Square Feet Flat in New York might
cost $5,00,000 since New York is the Financial Capital of the
United States of America while the same 400 Square Feet Flat
might cost only $300,000 in New Jersey, the city been lesser
expensive to live as compared to New York. Thus, there is a
price Discrimination on the basis of the Area the Flat is in, the
location adjacent to the Flat, the Connectivity, etc. these factors
have played a significant role in inflating the prices of the flat in
New York and decreasing the same in New jersey.

Obviously, the companies must have benefitted from price

discrimination for it to still exist. So, here are the advantages of price
discrimination.

1. It helps the companies to maximize their profits by selling the

products to a wide base of customers with differential pricing.

2. Might benefit more from the poor customers or the lower-income

group.
 3. It also helps to create an economic advantage to the poorer

sections of the society since they are deprived of the goods and

services due to the high costing in the market and due to the low

standard of living.

4. It can also help improve the standard of living and the economic

welfare of the area in which the services are provided.

Well, just like any other concept or strategy, price discrimination must

also have its cons. So, here are some of the disadvantages of price

discrimination:

1. It is unfair to those who are paying a higher price for the same

product in another area.

2. It may impact the monopoly power of the company since the

products are available at multiple prices in multiple areas.

3. The rich class ends up paying more for the product thereby

indirectly paying the price for other customers as well.

4. A proper and in-depth market study is required in order to offer

one particular product at a different price which can be a difficult

task.

5. It should come directly from the government in order to have

steady discrimination in the pricing