Let's look at a few examples of price discrimination.
One example is having theater tickets sold to seniors or to students at a discount.
So you might have a movie theater that has one price for everyone,
but there's a lower price if you're under the age of 18 or
if you're over the age of let's say 62.
So, how do you distinguish between the two groups?
By asking for ID,
by making sure that they are belonging to the group that deserves the discount.
And how do you eliminate resale?
Well you give the ticket to the person who's walking into the theater.
And so if you're buying a senior ticket, you have to walk in with a senior ticket.
You can't give it to someone who is not a senior.
Let me give you another example of price discrimination.
This is slightly more complicated.
Let's think of those coupons that we use sometimes in grocery stores.
Here in America there are coupons that are sent in the mail and for example you
might have a coupon that allows you to buy a box of cereal at a discount of $0.50.
So you go to the grocery store with your coupon.
And instead of paying $3.95, you're paying $0.50 less.
You're paying $3.45.
Why do I say this is a case of price discrimination?
What the coupon allows the firm to do, is to distinguish between those customers
who are price sensitive and those customers who are not price sensitive.
If you're not price conscious, you won't bother cutting the coupons,
remembering to bring them to the grocery store and using them.
But if you are price sensitive you will do this.
So even though everyone in America gets mailed these coupons in the mail,
this coupon is still a mechanism of distinguishing between these two groups.
Those who are willing to pay more and
those who will only buy cereal at the lower price.
