Price discrimination

[2] Price discrimination essentially relies on the variation in customers' willingness to pay[8][2][4] and in the elasticity of their demand.

For example, in the United States, the Robinson–Patman Act makes price discrimination illegal in certain anti-competitive interstate sale of commodities.

[23] Price discrimination requires market segmentation and some means to discourage discount customers from becoming resellers and, by extension, competitors.

In the market for DVDs, laws require DVD players to be designed and produced with hardware or software that prevents inexpensive copying or playing of content purchased legally elsewhere in the world at a lower price.

[22] When a seller identifies a consumer (or group) that has a lower willingness to pay, price discrimination maximizes profits.

[26] Market power refers to the ability of a seller to increase price without losing share (sales).

Splitting the market into peak and off-peak use of service is common and occurs with energy and cinema tickets, as well as gym membership and parking.

Ivan Png suggests an alternative taxonomy:[42] The hierarchy – complete/direct/indirect/uniform pricing – is in decreasing order of profitability and information requirement.

A business person may be willing to pay $300 for a seat on a high-demand morning flight with full refundability and the ability to upgrade to first class for a nominal fee.

[45][46] This could present an arbitrage opportunity in the absence of restrictions on reselling, but passenger name changes are typically prevented or financially penalized.

An airline may also apply directional price discrimination by charging different roundtrip fares based on passenger origins.

[47] Since airlines often fly multi-leg flights and no-show rates vary by segment, competition for seats takes into account the spatial dynamics of the product.

Airlines use yield management technology to determine how many seats to allot for A-B, B-C, and A-B-C passengers at varying fares, demands, and no-show rates.

Economists such as Tim Harford in The Undercover Economist have argued that this is a form of price discrimination: by providing a choice between a regular and premium product, consumers are being asked to reveal their degree of price sensitivity (or willingness to pay) for comparable products.

Many movie theaters, amusement parks, tourist attractions, and other places have different admission prices per market segment: typical groupings are Youth/Child, Student, Adult, Senior Citizen, Local and Foreigner.

[4] Market stall-holders and individual public transport providers may also insist on higher prices for their goods and services when dealing with foreigners (sometimes called the "White Man Tax").

[51] Some businesses may offer reduced prices members of some occupations, such as school teachers (see below), police and military personnel.

[53] In 1992, the New York City Department of Consumer Affairs ("DCA") conducted an investigation of "price bias against women in the marketplace".

[54] The DCA's investigation concluded that women paid more than men at used car dealers, dry cleaners, and hair salons.

In many cases, where the product is marketed to make an attractive gift, the gender of the purchaser may be different from that of the end user.

[55] For example, prior to the enactment of the Patient Protection and Affordable Care Act[56] ("Affordable Care Act"), health insurance companies charged women higher premiums for individual health insurance policies than men.

Under the Affordable Care Act, health insurance companies are now required to offer the same premium price to all applicants of the same age and geographical locale without regard to gender.

Since the purchasing power of African consumers is much lower, sales would be extremely limited without price discrimination.

The ability of pharmaceutical companies to maintain price differences between countries is often either reinforced or hindered by national drugs laws and regulations, or the lack thereof.

The researchers also found that the cross-national price differences actually raise the revenue of those companies by about 6% while reducing world users’ welfare by 1%.

This also has the characteristics of an "initial offer" – that is, the profits from an academic customer may come partly in the form of future non-academic sales due to vendor lock-in.

For example, some nonprofit law sellers charge on a sliding scale based on income and family size.

First, there was price discrimination according to income, with the poorer users benefiting from a higher discount rate than richer ones.

Some companies have high fixed costs (like a train operator, which owns a railway and rolling stock, or a restaurant, which has to pay for premises and equipment).

For instance, airlines can use price discrimination to encourage people to travel at unpopular times (early in the morning).