Price discrimination is a firm’s cent policy in which one product or service has a different price for different buyers. At the same time, the price difference is not justified by the costs of production, delivery or packaging (Cohen et al., 2022). Buyers view price discrimination as unfair, but in many cases, price discrimination is justified for business and brings more profit. The equilibrium price of a commodity from the point of view of a free market is formed at the intersection of supply and demand, which fluctuates depending on many factors. Many goods and services are influenced by seasonal or fashion factors. For example, people are used to airlines charging different prices for the exact tickets depending on the season or date of purchase.
Air travel prices rise during the holiday season due to the explosive growth in demand. Cinemas offer viewers cheaper tickets for screenings depending on the time of day. Morning, afternoon, and night movie screenings are cheaper than evening ones because most people finish work in the evening and choose to watch movies as an after-work leisure activity. Both examples are fair price discrimination, as an increase in demand drives pricing while supply remains unchanged (Cohen et al., 2022). The fact that some people pay more than others does not mean unethical or resentful. Buyers choose whether they can sacrifice their convenience and go to a cheaper movie session or whether it is more important for them to receive the service at a specific time.
Although, in general, price discrimination is justifiable, it considers factors such as sales volume, group discounts, seasonal fluctuations, or an improved level of service. However, there are instances of unethical and dishonest price discrimination, which can be seen especially online. For example, modern technologies allow us to determine what equipment a customer uses and set a higher price if the equipment is expensive (Poort & Zuiderveen Borgesius, 2019). Moreover, the seller can determine where the purchase was made and set higher prices for regions with high salaries. Such price discrimination is manipulative and speculative and not justified by market mechanisms.
References
Cohen, M. C., Elmachtoub, A. N., & Lei, X. (2022). Price discrimination with fairness constraints. Management Science. Web.
Poort, J., & Zuiderveen Borgesius, F. J. (2019). Does everyone have a price? Understanding people’s attitude towards online and offline price discrimination. Internet Policy Review, 8(1), 1-20. Web.