GROUP ASSIGNMENT COVER SHEET

STUDENT DETAILS

Student name: Nguyen Ngoc Quynh Anh Student ID number: 23005430

Student name: Nguyen Khanh Vinh Student ID number: 23005086

Student name: Do Tran Nhat Minh Student ID number: 23005804

Student name: Nguyen Thi Ngoc Nhi Student ID number: 23005667

Student name: Nguyen Hai Yen Student ID number: 22002872

Student name: Le Gia Han Student ID number: 23005674

UNIT AND TUTORIAL DETAILS

Unit name: Principle of Economics Unit number: PE-12324PWB-1

Tutorial/Lecture: Lecture Class day and time: Friday 12:00 - 15:15
Lecturer or Tutor name: Dr. Nguyen Thi Hoang Anh
ASSIGNMENT DETAILS

Title: Microeconomics Project

Length: 2,657 words Due date: October 28, 2023 Date submitted: October 28, 2023

DECLARATION
I hold a copy of this assignment if the original is lost or damaged.
I hereby certify that no part of this assignment or product has been copied from any other student’s work
or from any other source except where due acknowledgement is made in the assignment.
I hereby certify that no part of this assignment or product has been submitted by me in another
(previous or current) assessment, except where appropriately referenced, and with prior permission
from the Lecturer / Tutor / Unit Coordinator for this unit.
No part of the assignment/product has been written/ produced for me by any other person except
where collaboration has been authorised by the Lecturer / Tutor /Unit Coordinator concerned.
I am aware that this work may be reproduced and submitted to plagiarism detection software programs
for the purpose of detecting possible plagiarism (which may retain a copy on its database for
future plagiarism checking).

Student’s signature: Nguyen Ngoc Quynh Anh

Student’s signature: Do Tran Nhat Minh
Student’s signature: Nguyen Khanh Vinh
Student’s signature: Nguyen Thi Ngoc Nhi
Student’s signature: Nguyen Hai Yen
Student’s signature: Le Gia Han
 2

MICROECONOMICS PROJECT
Is price discrimination fair or unfair?

Nguyen Ngoc Quynh Anh, Nguyen Khanh Vinh, Do Tran Nhat Minh

Nguyen Thi Ngoc Nhi, Nguyen Hai Yen, Le Gia Han

UEH - International School of Business, UEH university

ECO101 : PRINCIPLE OF ECONOMICS

Dr. Nguyen Thi Hoang Anh

October 27, 2023

 3

Table of Contents

Abstract ...................................................................................................................................... 4
Introduction ................................................................................................................................ 5

A. Background information on Price Discrimination ...................................................... 5

B. Definition and Types of Price Discrimination ............................................................ 5

Arguments of Price Discrimination’s Fairness .......................................................................... 7

A. Economic quality .............................................................................................................. 7

B. Market Segmentation ........................................................................................................ 8

1. Price discrimination can promote social welfare ........................................................... 8

2. When is the price considered fair? ................................................................................. 9

Arguments of Price Discrimination's Unfairness....................................................................... 9

A. Economic inequality ......................................................................................................... 9

1. Price discrimination may exacerbate income disparities: .............................................. 9

2. Price discrimination can lead to arbitrage .................................................................... 10

B. Ethics and morality.......................................................................................................... 11

1. Explore the moral implications of charging different prices for the same product: .... 11
2. Price discrimination may be seen as exploitative. ....................................................... 11

Conclusion ............................................................................................................................... 12
References ................................................................................................................................ 13
 4

Abstract

When an item is sold at a more diverse cost than another, cost separation is taken out.
Cost is ordinarily a disagreeable point, particularly within the current challenging worldwide
financial environment; hence, firms forcefully compete with one another by having different
strategies for estimating their merchandise. A few individuals are substance with this since it
permits them to decrease their living costs. In any case, a few individuals discover it
troublesome to relate since they think that such an estimating difference is out of line. This
essay looks at the address of whether estimating separation is reasonable or unjustifiable from
both a financial and individual angle. Past investigation articles depended on hypotheses to
clarify the event of estimating segregation. The larger part of those papers concentrate on
hypothetical avocations, and this essay will show economics' perspective on cost separation in
real-world settings as well as that of our more youthful era. The exposition looks at a few
aspects of the issue from the points of view of commerce, instruction, and restorative, all while
highlighting contradicts almost how to recognize estimating separation as a fact of reality. Able
to viably survey whether cost segregation is reasonable or not by having a careful
understanding of the issue's various features.
 5

Introduction

A. Background information on Price Discrimination

In the modern 21st-century economic landscape, a trend arises that baffles and
captivates today's consumers just as much as it does economists. Imagine being about to
venture into an online marketplace to purchase a good and discover that the price differs for
everyone upon arrival. Such is the price discrimination, the pricing strategy that has elicited
increasing intrigue due to this specific characteristic. That is the question of whether or not, in
essence, this practice itself fundamentally fair or unfair commences at the heart of this essay.

B. Definition and Types of Price Discrimination

According to Varian (1989), price discrimination deals with the pricing policy that
refers to a situation where firms charge different prices for the same or homogeneous goods
and services to various groups of customers within the same market setting. Among these
factors are individual customer characteristics, location, time of purchase, or willingness to pay
(Anderson et al., 2022). Price discrimination is a great concept in economic and business
strategy that helps firms be competitive in maximizing their revenues optimally, allocating
resources, and doing justice when faced with different consumer tastes and preferences
(Pettinger, 2019).

Most important of all, price discrimination can enhance the consumer surplus extracted
by the firms from the market, thereby effectively enhancing the total revenues for the firm. It
also helps align prices with customer valuations, achieving better resource utilizability (Galera
et al. 2019). In this manner, businesses can sell as much as possible and more purposefully
provision the offerings for better fit with customer needs through segmentation of the market
on the basis of prices.

There are three degrees of price discrimination which are first-degree, second-degree,
and third-degree:

➢ First Degree of Price Discrimination: In this form of price discrimination, the supplier
charges each of their customers the maximum price any customer is willing to pay (Hal
et al., 1989). An example is eBay, where people are bidding on product prices, and the
more they are willing to pay, the higher the product's final cost is. Generally, it refers
to personalized pricing. Under this approach, companies acquire detailed information
 6

about the individual customer to identify a unique price for every transaction. First-
degree price discrimination seeks to take away the highest possible consumer surplus.
However, it is challenging to implement due to data requirements and customer
acceptance problems (Libretexts, 2021). The personalization of pricing has become
more common as firms in online markets use algorithms to determine different prices
for individual customers based on their location, browsing habits, purchase behavior,
and even demographics (European Parliament 2022).
➢ Second-Degree Price Discrimination: It consists of the offering by firms to consumers
of a set that differs in quantity or quality in such a way that in order to get the best price,
the consumer feels encouraged to reveal precisely how much he is willing to buy (Hal
et al., 1989). For example, software companies may have tiered pricing of their software
(e.g., primary, pro, premium), and the customer selects one version that suits them best
(Slingerland, n.d.). Netflix provides various plans of subscription, which a consumer
can select according to the quality and the needs of viewers of its consumers.
➢ Third-Degree Price Discrimination: Third-degree price discrimination means market
segmentation, which requires splitting the customers into sets according to prearranged
characteristics like age, location, or income. Then, they are charged different prices for
each group (Hal et al., 1989). For instance, airlines offer fare for students, senior fare,
or family fare. With such an approach, a company is likely to serve various target
customers and hence be able to record increased revenue, for instance, in airlines (Aryal
et al., 2018).
 7

Arguments of Price Discrimination’s Fairness

A. Economic quality

Price variation is economically efficient to the economy as it brings more revenue for
the seller and lower prices for some customers. Sellers enhance their profits above the level of
competition by using price discrimination. Typically, the goal of these large profits would be
to draw in new investment for the sector.

Price discrimination reduces inequalities of personal incomes when higher prices or

fees are charged to the rich than to the poor. Customers can purchase goods and services at
lower prices, which may reduce costs for some customer groups. High-elasticity customers
have the potential to accrue excess, which can improve their overall standard of living.
Furthermore, price variation can also help to prevent shortages and surpluses by encouraging
buyers and sellers to adjust their behavior according to market conditions. In conclusion, price
variation is an essential component of a healthy and thriving economy.

For example, the history of air travel prices reveals the benefits of price discrimination
for customers, companies, and society. By implementing yield management, airlines could
charge different fees to passengers based on various reservation parameters, such as the timing
of booking. This allowed air travel to grow on a larger scale compared to if airlines had charged
all passengers a uniform price to travel from point A to point B.

Moreover, price discrimination can depend on the amount used. Customers are paid
varying tariffs for power. The rate for the first 100 units of electricity used is higher. Following
the first 100 units, customers are billed at a reduced rate. The reasoning is that since the first
100 units of electricity are necessary, there is less elastic demand. But, your demand becomes
less necessary after the first 100 units of electricity, making you more price sensitive. As a
result, the electricity provider charges less. (Tejvan Pettinger, 2019). Additionally, generating
electricity in some countries, such as Vietnam, is sometimes more expensive as the firms want
to cover the production cost and inputs. (Argus Media, 2023). To illustrate, the electricity price
in Vietnam increased from 1,728 VND to 3,015 VND. ( Thư Kí Luật,2023)
 8

Cre: Pettinger, T. (2019, December 14). Examples of Price Discrimination. Economics Help.

B. Market Segmentation

Price discrimination is commonly practiced with market segmentation to distinguish

buyer categories and target each segment with a different pricing strategy. Price discrimination
is a means of market segmentation because it is a tactical mechanism for developing
appropriate product or service offerings that suit consumers' tastes and preferences in different
consumer segments. Such personalization plays an essential role in enabling businesses to fit
in with the variety of demands that their base of customers represents (Online Infomediaries
and Price Discrimination: Evidence From the Automotive Retailing Sector on JSTOR, n.d.).
For example, a software company may propose a few package options for software prices
suitable for individuals, small businesses, and large enterprises. The packages are detailed to
each of the different demands of all the segments, ensuring each segment gets the best value
for their use cases.

C. Ethics and morality

1. Price discrimination can promote social welfare

Price discrimination, which involves charging different prices for the same product or
service, can have a positive impact on promoting social welfare. In public utility services,
higher prices charged to higher-income groups are used as a tool for income redistribution,
with the government using the funds to subsidize lower-income groups. By offering different
 9

price points to different groups of consumers, businesses can increase access to their products
or services among those who may not be able to afford them otherwise.

In most societies, seniors and students can be offered lower prices as they tend to face
financial hardships. To illustrate, survey respondents from all countries consider it fair to offer
seniors discounts for groceries, medications, and some forms of entertainment, such as movies
(BHI survey)

2. When is the price considered fair?

Business leaders need to understand the factors that drive the customers’ perceptions of
fairness in the market and ensure that customers will perceive it as fair. By adopting the right
approach and gaining a proper understanding, companies have the ability to set prices in a way
that benefits both the company and its customers, while promoting the broader society as well.

To illustrate, price discrimination is fair when a discount is linked to a specific

condition. It is smart to charge price discrimination this way as different market segmentations
can charge different prices. With a condition, the firms can differentiate consumers, although
discounts are given to all customers.

Arguments of Price Discrimination's Unfairness

A. Economic inequality

1. Price discrimination may exacerbate income disparities:

Price discrimination can be a source of economic inequality as it may exacerbate

consumer income disparities. By distinguishing the price through individual characteristics or
willingness to pay, firms can ultimately force an increasing number of wealthy people towards
a lower price while progressively making poor people less affluent than average and more
reluctant to pay slightly higher prices for the same product (Elegido, 2011). This differentiation
of the prices would put the economically underprivileged in a situation where they are burdened
with other additional expenses, thereby increasing inequality.

For example, within the education sector, publishers of college textbooks tend to have
considered highly inflated prices for such textbooks, thus straining lower-income students'
financial resources. In this way, economic disparity tends to be perpetuated since expensive
 10

textbooks mean that higher learning institutions are unachievable for poor students (Koch,
2006).

Vulnerable and disadvantaged groups can be particularly adversely affected by price

discrimination. This is evident in the healthcare industry, where people without comprehensive
health insurance are likely to contribute far more to accessing medical services and prescription
medicines than those with insurance coverage (Kaplan, 2020). Such practices only increase
these inequalities in access to healthcare, aggravating problems of the underprivileged
communities to seek proper care. For instance 2018, more than 80% of white Americans had
Medicare coverage, compared to 62% of Black Americans and 52% of Hispanic Americans
because of health inequity (Kaplan, 2020). Additionally, according to Himmelstein, Hospitals
that serve persons of color have much lower asset values than other hospitals and are less likely
to provide a variety of capital-intensive services, which indirectly lead to the fact that Black
and Hispanic Americans are three times more likely to contract Covid-19 and twice as likely
to die from the disease. The mortality rate in some Black counties is approximately six times
that of predominantly white counties (Kaplan, 2020).

2. Price discrimination can lead to arbitrage

Arbitrage is buying and selling products that take advantage of the price differences in
different markets to make a profit. The simple definition is buying in the lower price markets
and selling to the higher price markets. There may be a chance for arbitrage since price
discrimination necessitates charging one group a greater price than another. This opportunity
would arise from members of the low-price group purchasing at a low price and selling at a
high price. Arbitrage effectively changes a two-price system to sales at a low price if the
seller cannot stop it.

For example, concert ticket price discrimination occurs when organizations typically
sell individual tickets more expensive than group tickets. Some people will take advantage of
this; they will buy tickets in groups and resell them at individual ticket prices to make a
profit. For instance, an individual ticket is sold for $10, while a group of more than five
people could purchase a group ticket for $7 per one. Thus, they could profit $3 per ticket if
they resell them to other ones.
 11

B. Ethics and morality

1. Explore the moral implications of charging different prices for the same product:

The ethical and moral questions surrounding price discrimination are that ostensibly
different people are charged differently for a similar product or service with no justifiable cause
in differences in the costs of producing or distributing the products. In ethical terms, it may be
deemed as a discriminatory measure about the quality of the product or pricing and cost
(Kareem, 2023).

For example, supercharging life-saving drugs by pharmaceutical companies in some

parts of the world or to a given population demographic is ethically problematic. These
practices are likely to be seen as unethical simply because they put profits before the welfare
and access to much-needed health services by all individuals (Grover et al., 2012).

2. Price discrimination may be seen as exploitative.

In this case, price discrimination can be seen as exploitative by firms to consumers.

This is more realistic when 'consumers are compelled by their physical circumstances to give
greater than competitive prices' (Elegido, 2011). A case can be categorized as exploitation
when the firms overprice the consumers to whom they sell goods and services, the consumers
who, due to lack of adequate options or information, have no choice but to buy such goods and
services - primarily when the cost or underlying quality of those goods and service does not
support those price levels.

A case in point is where individuals or entities purchase tickets to an event and

afterward sell them at an excessively higher price, taking advantage of the demand by
consumers to attend the event, which, in this case, is scalping. This can be categorized as a
practice that exploits and takes advantage of the consumers' poor choices to be there.
 12

Conclusion

This essay has meticulously examined the contentious issue of price discrimination,
thoroughly considering arguments in favor of and against its fairness. In conclusion, price
discrimination is fair or unfair, depending on the situation. This is a problem that is still being
debated. Many people think it is inequitable, but many economists have proved it is beneficial
in some cases. From an ethical and social perspective, price discrimination enhances the class
distinction for some scarce and limited goods, and the wealthy are willing to pay more, so they
are provided with the best treatment, various selections, and many privileges.
In contrast, people with low incomes cannot compete. Besides, with the same product
and service, different people are charged at different prices, and they have no choice but to pay
at the maximum possible money they can purchase. Moreover, this allows firms to commit
unethical actions such as exploitation. Producers can set prices at a higher level than the
competitive price and put the consumers in a dilemma, forcing them to spend a large amount
of money. In contrast, from an economic perspective, price discrimination lessens the
disparities between the two groups, which occurs when rich people pay more for goods or
services than poor people. Since it increases access to a wide range of services, even those who
previously could not afford it, some areas are encouraged to develop. Overall, the living quality
of the whole society will be improved dramatically, and the economy will experience incredible
growth. Furthermore, by incentivizing buyers and sellers to modify their behavior to market
conditions, price volatility can also aid in preventing shortages and surpluses. It is exceedingly
complex to determine whether it is fair or unfair.
 13

References

8.2: Perfect or First-Degree Price Discrimination. (2020, March 17). Social Sci LibreTexts.
https://socialsci.libretexts.org/Bookshelves/Economics/An_Interactive_Text_for_Food_and_
Agricultural_Marketing_%28Thomsen%29/08%3A_Price_Discrimination/8.02%3A_Section
_2-

Aryal, G., Murry, C., & Williams, J. W. (2018). Price Discrimination in International Airline
Markets. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3288276

Baik, S. A., Alicia, & Larson, N. (2022). Price Discrimination in the Information Age: Prices,
Poaching, and Privacy with Personalized Targeted Discounts. The Review of Economic Studies.
https://doi.org/10.1093/restud/rdac073

Elegido, J. M. (2011). The Ethics of Price Discrimination. Business Ethics Quarterly, 21(4),
633–660. https://doi.org/10.5840/beq201121439

European Parliament 2022, Personalized Pricing, European Parliament .

Galera F Garcia P & Mendip (2019). ‘Consumer surplus bias and the welfare effects of price
discrimination,’ Journal of Regulatory Economics, 55(1): 33–45.

Grover, A., Citro, B., Mankad, M., & Lander, F. (2012). Pharmaceutical Companies and Global
Lack of Access to Medicines: Strengthening Accountability under the Right to Health. Journal
of Law, Medicine & Ethics, 40(2), 234–250. https://doi.org/10.1111/j.1748-720x.2012.00661.x

Jacob Clifford, Adrien Hill (2016), Monopolies and Anti-competitive Markets: Crash Course
Economics #25 https://youtu.be/Sb_-wfmJnHA?si=Cw2ZROyaBv_6v1Sz

Kareem. (2023, February 14). Pricing Ethics: Balancing Fairness and Profitability. Pricing
Solutions. https://www.pricingsolutions.com/pricing-blog/pricing-ethics-balancing-fairness-
and-profitability/

Kimes, S. (2002). Perceived fairness of yield management. The Cornell Hotel and
Restaurant Administration Quarterly, 43(1), 21–30. https://doi.org/10.1016/s0010-
8804(02)80005-2
 14

Kaplan A (2020) Hospital Price Discrimination Is Deepening Racial Health Inequity, NEJM
catalyst. https://catalyst.nejm.org/doi/full/10.1056/CAT.20.0593

Koch, J. V. (2006). An Economic Analysis of Textbook Pricing and Textbook Markets.

ACSFA College Textbook Cost Study Plan Proposal. ACSFA College Textbook Cost Study
Plan Proposal. http://files.eric.ed.gov/fulltext/ED497025.pdf

LawNet, N. phát triển N. H. H.-Đ. P. L. thuộc công ty. (n.d.). Latest retail electricity prices for
domestic use in Vietnam in 2023. Ngân Hàng Hỏi - Đáp Pháp Luật. https://lawnet.vn/ngan-
hang-phap-luat/en/tu-van-phap-luat/tai-chinh-nha-nuoc/latest-retail-electricity-prices-for-
domestic-use-in-vietnam-in-2023-390976

Nickolas, S. (2019). How do companies use price discrimination? Investopedia.

https://www.investopedia.com/ask/answers/050715/how-do-companies-use-price-
discrimination.asp

Online Infomediaries and Price Discrimination: Evidence from the Automotive Retailing
Sector on JSTOR. (n.d.). https://www.jstor.org/stable/30163983

Pettinger, T. (2019, December 14). Examples of Price Discrimination. Economics Help.

https://www.economicshelp.org/blog/7042/economics/examples-of-price-
discrimination/?fbclid=IwAR0aOigvWtg2gd7IUPEVnyqsoWe-08rtQj6eghSeVqq_kh4-
NP3RxJrLDXw

Solving the Paradox of Fair Prices. (2022, May 9). BCG Global.
https://www.bcg.com/publications/2022/considering-pricing-variation-to-help-solve-the-
paradox-of-fair-prices

Tejvan Pettinger. (2017, February 28). Benefits of Price Discrimination | Economics Help.
Economicshelp.org. https://www.economicshelp.org/blog/306/concepts/benefits-of-price-
discrimination/

Tiemstra, J. P. (2004, April 16). Price Discrimination and Fairness - Reformed Journal.
Reformed Journal. https://reformedjournal.com/price-discrimination-and-fairness/

Varian, H. (1989). PRICE DISCRIMINATION. https://sites.bu.edu/manove-

ec101/files/2017/11/VarianHalPriceDiscrimination1989.pdf
15