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by sokoloff
3040 days ago
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Price Discrimination, done well, can be beneficial for market participants on both the buy and sell side. Businessperson who needs to go somewhere to close a deal? Flight on a very specific day/time on short notice might be worth $5K+ to the company. Grandma coming to visit the grandkids on "oh, anytime in March or April" might only be able to allocate $300 to the flight. Businessperson gets to fly where/when they need to go for only $3K. Grandma gets to see the grandkids on a $250 ticket with a lot of restrictions that don't bother her. If everyone had to pay $1.5K for the tickets, it's possible that the airline wouldn't sell enough seats to fly the route at all. |
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In theory, Perfect Price Discrimination is also beneficial to sub-equilibrium market consumers since they can access goods at prices they can afford. But at the same time it is proportionally harmful to consumers above equilibrium as they start paying more for goods that unaltered equilibrium would have ordinarily priced lower (decreasing their surplus). It's unclear that given the opportunity firms would perfectly price discriminate below market equilibrium at all since it's unclear if the incentive structure would make it beneficial to do so.
And as a whole, to the best of my rudimentary knowledge, it's unclear as to whether or not Perfect Price Discrimination, with the reduction in consumer surplus as a result, would be beneficial to the economy as a whole. A simplistic conservative view would be that Price Discrimination prices goods based on what you can "afford" and therefore lowers prices. An equally simplistic liberal view would be that it's companies taking money from consumers. Neither of which are complete pictures...but factually Price Discrimination is a firm strategy that is a result of non-competitive markets. Generally speaking, non-competitive firm strategies disproportionately favor the firm over consumers.