In other words the older person gets the senior

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Unformatted text preview: dded revenue” from price discrimination, it goes instead to one buyer. Where Does Price Discrimination Occur? Think of the places where you might see price discrimination. Often restaurants will sell a dinner to an older person for less than it will sell the same dinner to a younger person. In other words, the older person gets the “senior discount.” Here is an example where the good the older person buys is not usually resold. We have never seen an older person in a restaurant buy the salmon and vegetables for $15 and then try to sell it for $20 to the person at the next table. As we mentioned earlier, we sometimes see price discrimination at a movie theater. Young kids are often charged less than adults. Again, little if any reselling is going on here. A kid doesn’t typically buy 100 tickets for $4 each and then stand outside the movie theater selling them for, say, $7 each. You will also sometimes see price discrimination at a pharmacy. An older person may perhaps pay a lower price for a medicine than a younger person. Here again reselling of the medicine is unlikely. Older people (and younger people too) only buy medicine they seem to need. Did you ever see an older person standing outside of the pharmacy offering a 40-year-old his or her high blood pressure medicine for a lower price than the 40-year-old has to pay? Can you think of ways in which this major retailer, which sells men’s and women’s fashions at its Web site and in stores across the country, might practice price discrimination? Why Not Higher Prices for Everyone? Here’s something to consider, though: why does the seller charge a lower price to some customers than to others. For example, if the older person would pay $20 “If you wish to prosper, let for the salmon and vegetayour customer prosper.” bles, why charge $15? If the —Frederic Bastiat young kid would pay $8 to get into the movie, why charge $4? The answer is because the seller believes that older persons (on average) won’t pay $20 for the salmon and vegetables and that young kids (on average) won’t pay $8 to get into the movie. It’s not that the seller is trying to “do a favor” for the older person or the young Section 4 An Oligopolistic Market 217 08 (186-221) EMC Chap 08 11/17/05 5:29 PM ??? Could Your ZIP Code Cost You? I n 2000, Amazon.com, the large online seller of books and more, was charging different prices for its new DVDs. Some customers were charged a higher price than other customers. In other words, it looked as if Amazon.com was price discriminating. Amazon.com said that it was not; it said that it was engaged in a random “price test,” to find out what customers were willing and able to pay for DVDs. If you frequent an online seller regularly, as many people do who buy books from Amazon.com, it is possible for the online seller to acquire certain information about your buying habits. For example, it is not difficult for an online seller to know the dollar amount of your Page 218 purchases and the frequency of your purchases. For example, almost any online bookseller you deal with will know your buying history with it. Also, because online sellers must send you (through the mail) the products you buy, they naturally know your ZIP code. Once an online seller knows your ZIP code, it is fairly easy to find the median family income earned in that ZIP code. At the Bureau of the Census Web site (www.emcp.net/census), you can key in the ZIP code and it will provide income information. For example, by keying in the ZIP code “90029,” we learned that the median family income is $87,416. By keying in the ZIP code “24108” we learned that the median family income is $66,678. An online seller could easily link your name to your ZIP code so that the next time you visit its site, you see the prices for that particular ZIP code. (Might people who live in Beverly Hills, California, be willing and able to pay kid. It’s that the seller has some reason to believe that the older person will not buy the dinner unless it is priced at, say, $15. How does the seller know? It might be because at $20 a dinner, very few older persons show up to buy the meal, but at $15 a dinner, many do. The situation is similar with the movie theater and the young kids. It might be that if the price is $8 for adults and for kids, few young kids would show up at the movies. Parents might leave their kids at home, or with a babysitter, if they have to pay $8 for their young kids, but will bring their kids along to the movie if the price is $4 for the kids. 218 Chapter 8 Competition and Markets higher prices for books and DVDs than people who live in a small, rural town in the Midwest?) As far as we know, no seller does what we have suggested here. However, it doesn’t mean that it might not become a topic of discussion in the months and years ahead. THINK ABOUT IT What is your opinion of price discriminating according to ZIP code? QUESTION: Does one buyer end up pay- ing a higher p...
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