Direct Price Discrimination

Direct Price Discrimination

Kim Mariani

Widener University

Direct Price Discrimination

        In this paper I will be discussing what direct price discrimination is, if it is legal and ethical and an example across the US and worldwide. Before direct price discrimination is discussed I thought it was important to understand what price discrimination is. According to Froeb, McCann, Shor, and Ward (2010), price discrimination is the practice of charging different people or groups of people different prices based on differences in demand. We can see this in a direct scheme and an indirect scheme.

        For this paper I will be discussing the direct price discrimination scheme. Direct price discrimination is when you are able to identify members of the low-value group, charge them a lower price, and prevent them from reselling their lower-priced goods to the higher- value group (Froeb et al. 2010). What this means is companies base their prices off of individuals incomes. An example of this both in the US and worldwide would be movie theaters or tourist attractions.

These businesses base their prices off of their customers. For example movie theaters attract all ages. They are able to charge children less for a ticket than and adult because they know that adults have a higher disposable income than children. They can also base their prices off timing. Most adults are going to be going to a late night movie after work on the weekends where as the retired elder generation would go see a matinee show. They can charge less for these kinds of tickets because they need daytime customers but they may also have a lower disposable income.

This type of scheme isn’t only used in the US but it can happen worldwide. For example international tourist attractions can price their admissions higher for the tourist and lower for the resident. If the country isn’t an American speaking country the business will know if the customer is a tourist or resident based on accents. Some tourist customers try to fake their way through it but aren’t always successful. They can also price their tickets by offering student discounts.

        The big question is, is this ethical and legal. It is known that discrimination is illegal. However in this case I would consider direct price discrimination legal. Businesses have a legal right to set their prices. It is the consumer’s decision whether or not they purchase the ticket. For example, someone who wants to see a movie can pay that price or seek alternative such as Netflix, Redbox or renting it On Demand. However if the business discriminates based on race, religion, nationality or sex that would be considered illegal. As for ethical this can be debated multiple ways. The way I see it is customer continue to buy products whether they know the prices is altered. Do I think it is right, no. However business will continue to do it and consumers will buy. As long as businesses are not discriminating on race, nationality, sex, etc. then it is okay.