Cody’s Cowboy Hat Emporium has two stores Fort Worth, TX. One in the Stockyards area that caters to tourists and
another a mile further north that caters to ranch hands. Why doesn’t Cody sell to both customer types out of one store?
Two stores keep tourists from arbitraging away the price differences in Cody’s discrimination scheme. Since
tourists do not have too many opportunities to buy cowboy hats, their demand rather inelastic. Ranch hands
often replace their hats and are more aware of the different retailers and so are more elastic demanders. Cody
takes advantage of this fact by charging higher prices at the Stockyards. It does not sell to ranch hands out of
this store because tourists would try to arbitrage away the price differential.