Fundamentals of Economics. Доловова Н.Н - 43 стр.

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Movie Tickets
Many movie theaters charge a lower price for children and senior citizens than
for other patrons. This fact is hard to explain in a competitive market. In a
competitive market, price equals marginal cost, and the marginal cost of providing a
seat for a child or senior citizen is the same as the marginal cost of providing a seat
for anyone else. Yet this fact is easily explained if movie theaters have some local
monopoly power and if children and senior citizens have a lower willingness to pay
for a ticket. In this case, movie theaters raise their profit by price discriminating.
Airline Prices
Seats on airplanes are sold at many different prices. Most airlines charge a
lower price for a round-trip ticket between two cities if the traveler stays over a
Saturday night. At first this seems odd. Why should it matter to the airline whether a
passenger stays over a Saturday night? The reason is that this rule provides a way to
separate business travelers and personal travelers. A passenger on a business trip has
a high willingness to pay and, most likely, does not want to stay over a Saturday
night. By contrast, a passenger traveling for personal reasons has a lower willingness
to pay and is more likely to be willing to stay over a Saturday night. Thus, the airlines
can successfully price discriminate by charging a lower price for passengers who stay
over a Saturday night.
Quantity Discounts
So far in our examples of price discrimination, the monopolist charges different
prices to different customers. Sometimes, however, monopolists price discriminate by
charging different prices to the same customer for different units that customer buys.
For example, many firms offer lower prices to customers who buy large quantities. A
bakery might charge $0.50 for each donut, but $5 for a dozen. This is a form of price
discrimination because the customer pays a higher price for the first unit bought than
for the twelfth. Quantity discounts are often a successful way of price discriminating
because a customer’s willingness to pay for an additional unit declines as the
customer buys more units.
Answer the questions
1. Are all customers in an equal position when they buy goods?
2. What does “price discrimination” stand for?
3. Is price discrimination possible in competitive market? Why?
4. What must a firm have to price discriminate?
5. Do movie theaters price discriminate? How do they do it?
6. Are airline prices different? What factors do they depend on?
7. Into what two categories do airlines divide customers?
8. What characteristics of business travelers are important for airline companies?
9. Is a passenger traveling for personal reasons more or less willing to pay?

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