Question

1. Which of the following are examples of price discrimination? Explain your answers.

a. A cell phone carrier offers unlimited calling on the weekends for all of its customers.

b. Tickets to the student section for all basketball games are $5

c. A restaurant offers a 20% discount for customers who order dinner between 4 and 6 p.m.

d. A music store has a half-price sale on last year's guitars.

e. A well-respected golf instructor charges each customer a fee just under the customer's maximum willingness to pay for lessons.

Answer 1

Answer: b, c, and e

The price set not by the virtue of market equilibrium (demand and supply intersection) but by the virtue of monopolist’s own discretion is price discrimination.

Option a: This is not price discrimination, since there is no manipulation of price.

Option b: This is price discrimination (3^rd degree), since price charged differently for different group of people – students are charged a separate price.

Option c: This is price discrimination (3^rd degree), since price charged differently for different time of use – offered 20% discounted price between a specific time periods.

Option d: This is not price discrimination. Here the price is lowered but not discriminated.

Option e: This is price discrimination (1^st degree), since the willingness-to-pay of each customer is considered separately. In this discrimination the monopolist capture the whole consumer surplus.