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Consumer Welfare and Price Discrimination Essay

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Updated: Jun 6th, 2021

Introduction

All companies use different tools and combinations to stay competitive and raise their profits. One of the ways to achieve this is by using price discrimination. It seems to be more important for businesses that offer similar products and services regionally rather than monopolies. Offering coupons and rebates is one of the strategies that fall under the concept of price discrimination. While the possibility of purchasing goods for a lower price may seem attractive to many potential customers, the extent of actual usage depends on the amount of time and effort required for such a deal. This paper includes the theoretical background, as well as provides a personal experience, and opinion of whether this practice is fair.

Third-Degree Price Discrimination

Coupons and rebates are some of the examples of the practice known as price discrimination. The literature suggests that it is the scheme that makes various customers pay different amounts of money for the same product or service offered by a single company (Wallmark, Greenberg, & Engels, 2018). There are three degrees of price discrimination, the latter of which is based on dividing the market into different groups. Companies offer varying deals depending on the type of potential customers that may be represented by students, parents, senior citizens, and others.

The practice is often used by companies to maximize their profit as they try to reach consumers with different levels of elastic demand. At first glance, third-degree price discrimination may suit people with relatively low income, as it becomes possible for them to purchase items that they typically would not buy. Besides, companies benefit as they make their products and services visible to a broader audience. There is a chance that customers will come back and pay the regular price if they like goods. In this way, third-degree price discrimination can be an effective marketing tool.

Personal Experience

I have once attended a large furniture store on the outskirts of the city where I lived. After paying for items, I got a receipt and a coupon for a five-percent discount on a collection of home textile which was active until the end of the month. At that moment, I moved into a new apartment and was setting it up for a long-term living. Textile such as towels and curtains was on my list of required items, so I was seriously thinking about using the coupon.

However, since I did not tend to make spontaneous purchases, I chose to decide at home. There were only four days left until the end of the deal, and the store was situated too far away from my house to spend time going there for just a few products. Unfortunately, the price I had to pay for the delivery was even higher than my potential saving. These factors made me choose not to use the coupon and leave shopping for when it would be more comfortable.

Another time when I received a coupon was when I made a purchase in one of the online bookstores. Since the sum was over a determined amount, the platform allowed me to use a personalized coupon for receiving a 25 percent discount for the next purchase in the category of non-fiction literature. In fact, that was the first time when I bought books in that store. I did not like their delivery service, as it took more than a week and there was no follow-up from the company during that period. However, the quality of the items was excellent, so I chose to use the coupon to buy a book for my friend as a Christmas present. Considering the season, I made a purchase beforehand, and the process was effortless since it took me only a few clicks to make an order.

The Issue of Fairness

Many people see any kind of discrimination as unethical, and the described practices of companies providing different prices are viewed by them as unfair. However, the law determines it as legal and having a possibility to exist. The ground rule for companies is not to violate the Sherman Antitrust Law, which prevents businesses from discriminating against consumers based on gender, race, and other demographic characteristics (Wallmark et al., 2018).

Besides, studies suggest that uniform prices may cause issues with product variety (Li & Shuai, 2019). I believe that offering coupons is a fair practice that allows companies to serve more customers with different levels of elastic demand. Correspondingly, there should not be any laws that would restrict businesses from using this tool to market their products. In theory, anyone can become a coupon holder, and it is not entirely correct to complain about the missed opportunity.

Conclusion

Coupons and rebates are a part of third-degree price discrimination used by many companies. While they may benefit some potential customers, regular deals also attract their audience. My experience contained situations when factors such as time and effort required influenced my decision about using a coupon. I believe that it is a fair practice since such deals are normally available to any customer, and companies do not reject people from receiving them.

References

Li, Y., & Shuai, J. (2019). Monopolistic competition, price discrimination, and welfare. Economic Letters, 174, 114-117. Web.

Wallmark, M., Greenberg, E., & Engels, D. (2018). Consumer welfare and price discrimination: A fine line. SMU Data Science Review, 1(1). Web.

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IvyPanda. (2021, June 6). Consumer Welfare and Price Discrimination. Retrieved from https://ivypanda.com/essays/consumer-welfare-and-price-discrimination/

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"Consumer Welfare and Price Discrimination." IvyPanda, 6 June 2021, ivypanda.com/essays/consumer-welfare-and-price-discrimination/.

1. IvyPanda. "Consumer Welfare and Price Discrimination." June 6, 2021. https://ivypanda.com/essays/consumer-welfare-and-price-discrimination/.


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IvyPanda. "Consumer Welfare and Price Discrimination." June 6, 2021. https://ivypanda.com/essays/consumer-welfare-and-price-discrimination/.

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IvyPanda. 2021. "Consumer Welfare and Price Discrimination." June 6, 2021. https://ivypanda.com/essays/consumer-welfare-and-price-discrimination/.

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IvyPanda. (2021) 'Consumer Welfare and Price Discrimination'. 6 June.

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