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What are the disadvantages of price discrimination?
which of the following constitute price discrimination and which does not?
What are the disadvantages of price discrimination?
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In the business world, price discrimination can be detrimental to small businesses trying to compete with larger organizations pricing. In the 1930s congress was worried about large multimarket firms using predatory marketing techniques in certain markets to bankrupt smaller firms in the area. In response, Congress enacted the Robinson-Patman act which prohibits larger forms conducting pricing strategies that contribute towards becoming a monopoly by getting rid of their rivals, the smaller family owned stores. With this measure in place the smaller mom and pop stores are better protected from the larger chains and can help to contribute more to the local economy. A downside of the act from a consumer standpoint is that the larger chain firm …show more content…
Morton Salt, the FTC thought that the ability for the larger businesses to buy much more from wholesale producers such as Morton Salt, especially when Morton Salt had special discounts for firms that bought more product. The smaller firms could not compete and the commissioner found that it was monopolistic behaviour and put a stop to it. Another issue of ethics that presides in the study of price discrimination is that companies like morton salt are not very or at all transparent about the reasoning behind certain price discriminations. Companies do not actively state why certain products or services are more expensive for some customers and not others. In the journal article “The ethics of Price Discrimination” the authour Juan M. Elegido describes a common scenario in airline price discrimination tactics “The easiest way to spoil a plane trip is to ask your seatmate how much he/she paid for her/his ticket. You might well find that while you (or your employer) paid $1,100, your seatmate was making the same trip, with the same comfort, for only $180”. Why the vast difference? Only the airline knows for the most part, but they are not telling unless someone tried to dispute the price difference …show more content…
The effects and methods businesses use price discrimination are varied from gas stations pricing their gasoline at different prices according to the location and population demographic they are in, to the movie theatres pricing different tickets according to age group. In any industry if a business can capitalize and make better profits by conducting price discrimination they will. As discussed previously price discrimination is not necessarily a bad thing for the economy or consumers, the general public will be able to find the same or similar goods at lower prices by shopping at larger firms, which can help less fortunate families greatly considering the current economic situation. Those that find products which they frequently buy at lower prices will purchase these items in larger quantities than before raising profits for the business and helping the general
Wal-Mart was not always the superstore that it is today. In the late 1940’s, Sam Walton took up the ownership of a Ben Franklin’s store in Newport, Arkansas. Even during the time before Wal-Mart, Walton was all about keeping prices low. It is every business’s objective to find the right balance between the prices of an item to meet the demands of the consumer in order to maximize revenue. How could Walton still make a profit while keeping the prices low for the consumer? Even while still operating the Ben Franklin’s store, he would purchase products from wholesalers and minimally markup the price. Where most retailers would rely on markup prices to gain profit, Walton would rely on pure volume in order to make up for the low prices (Frank, 2006). This was a smart decision on his part because it makes sense that if a consumer can get the same product for a lower price then they will purchase the cheaper product. It was not until 1962 that Sam Walton opened the first Wal-Mart store, also in Arkan...
Price discrimination can be defines as when a firm offers an “individual good at different prices to different consumers” The Library of Economics and Liberty elaborates on its pricing strategy, stating Comcast offers different pricing depending on what features the consumer desires. For instance, the cable company will charge a higher price to a person who uses several services as part of their cable package. Conversely, the firm charges a very low price to someone who would “otherwise not be interested” , providing basic services at a minimum price. It takes advantage of the regulation imposed on the cable industry by offering the required basic package at seemingly attractive prices. Using this pricing system allows for it to attract different consumers whose maximum price they are willing to pay differs. Recently, Comcast attempted a new billing strategy by introducing a data usage cap. It essentially expanded on the company’s existing price discrimination method by charging customers according to how much data they used each month. Comcast also utilizes penetration pricing, where it offers its product at low prices to attract new consumers, later raising the prices once the customer is subscribed for a certain amount of time. Generally it claims the original prices were promotional only, lasting only a small amount of
The Article "Flanking in a Price War" discusses how an economic experiment and data were used effectively in the Quebec grocery industry. The beginning of the article gives some history of the industry, introduces the major participants, and describes how one firm in particular, Steinberg, used a price cutting strategy to became the dominant player for 30 years.
Wal-Mart has faced several accusations of, "predatory pricing", or intentionally selling a product below cost in order to drive some or all competitors out of the market.
...e. A price gouger needs to charge more in order to avail the product or service. In the case of Raleigh, the roads to the town were not accessible due to fallen trees and rocks. An entrepreneur would need to cut the trees and remove the rocks in order to take the product there. People who do that need compensation for all the trouble they take to bring products to the market. The youths who brought ice to Raleigh town had to cut down trees in order to access town. Instead of selling ice as the “right price” of less than 2 dollars, the youths charged more than 8 dollars. The price provided just there right compensation for all their efforts. Banning price gouging led to serious suffering of the people because the little food left went bad causing even more losses. For a few dollars for the price of ice, Raleigh residents could have saved millions worth of food.
Section 2 outlaws price discrimination when it isn’t justified on the basis of cost differences and when it reduces competition.
If the demand for a product is low, then a customer will not be willing to pay a higher price, but if a product is in high demand, then a customer will be more willing to pay a higher price. Other factors may include location, age, and economic status. An example of price discrimination is the price of textbooks. Due to the copyright protection laws, the cost of textbooks in the United States are much higher than in other countries (Price). While price discrimination can be a bad thing, that is not always the case. An example of price discrimination that benefits consumers is age discounts. Often places like movie theaters and restaurants will have discounted items for customers like senior citizens or children. Another example is occupational discounts, such as military discount (Price). Price discrimination is commonly used in competitive markets to benefit businesses and consumers, but monopolies use it to benefit only themselves at a cost to
Many businesses used this new process to raise the price of their competitors. They did this by putting constraints on entry restrictions (Woods 1986). At the state level, other laws were put in place to support the Food and Drug Act mainly to help local and area producers who were and would be facing new nat...
Price discrimination is a significant and influential practice on the market in the modern economic world. It aids in a firm's profit maximization scheme, it allows certain consumers with more scarce resources the opportunity to purchase goods or services that would otherwise be usable, and it aids firms in balancing what is and what is not sold. Price discrimination is an effective means by which a firm can sell a higher quantity of goods, make a higher profit margin on the goods it sells, and builds a broader consumer base due to differing price elasticity of demand for given goods and services. Price discrimination ultimately equalizes price and value for both the consumer and the firm, creating a more ideal situation for both entities in terms of preference and opportunity cost.
Imagine being discriminated against because of a preference or something that is unable to be changed. What would that feel like? Discrimination is happening all around the world, with all different kinds of people. People can be discriminated against by all types of things, such as age, sex, race, religion, sexuality, height, etc. I believe that discrimination is becoming a bigger cause in other countries as the United States (US) and that it should be addressed more than it is being. There are many types of discrimination going on throughout various places but, the three main ones happening are sexuality discrimination, race discrimination, and religious discrimination. The biggest one accruing right now is sexuality discrimination.
Price gouging is a very tricky to figure out if it should be legal or not. When the topic was first brought up I was unsure of my opinion. But after reading the articles, watching the videos, and the class discussion I have come to a decision. I think price gouging should be legal but it is morally wrong. If there was a natural disaster and everyone needs gas but there is a shortage of it there becomes a problem. If the gas company continues to sell the gas at the same price everyone will be rushing to get it. This would cause people to fill their whole tank of gas instead of just taking what they need to get where they are going and making the lines be very long until they have no more gas. The company would also be losing out on money they
Helgeson, James G., and Eric G. Gorger. "The Price Weapon: Developments In U.S. Predatory Pricing Law." Journal Of Business-To-Business Marketing 10.2 (2003): 3. Business Source Complete. Web. 15 Apr. 2014.
The competition and consumer act aims to discourage price discrimination in the business environment if the discrimination could substantially reduce competition. An example of price discrimination would be Apple with the distribution of IPhone 5c around the world, the prices vary from $500-$1,500(local currency). The IPhone 5c is less-profitable for Apple but still the price range has a big gap e.g., in Singapore the iPhone costs $948, but in the UK it costs $529 . There are three types of price discrimination (first degree, second degree and third degree) and they all discriminate differently. The price discrimination in business will increase revenue, they will attract more consumers and will enable companies to stay in business. The consequences for price discrimination is that the manufacture/business will get sued by consumers for price discrimination especially when paying higher prices, decline in consumer surplus, there may be administrative costs of separating the markets etc. However, Price discrimination has a lot of impacts on consumers and business owner 's around the world but most importantly it affects people that have been discriminated over the price for the same
Fair Trade is a simple idea that improves the living and working conditions of small farmers and workers. The Fair Trade movement promotes the standards for fair labor conditions, fair pricing, direct trade, environmentalism, social policy, and community development. Businesses wishing to adopt Fair Trade practices have to purchase certification licenses, which then leads to Fair Trade Labeling Organization (FLO) sending representatives to the farms from which the products are purchased and ensures that the farmers adhere to the procedures outlined in the Fair Trade standards. Products marked by the Fair Trade label contain 100% Fair Trade certified contents. Buying Fair Trade Certified products, consumers are helping the lives of famers out of poverty through investments in their farms/communities, protecting the environment, and developing the business skills for trading. The practice of Fair Trading a good way to not only help cause awareness but also improve the lives of the workers.
Price, in terms of money, is considered as a measure of value and as the quantity of money in units of some form of currency which one may buy or sell a commodity (Fetter, 1912).