Has the internet made price discrimination more difficult or easier?
Price discrimination is charging different prices to different groups of consumers for the same good.
Price discrimination requires that firms
- Can separate markets into different distinct groups
- Groups have different elasticities of demand
- The firm can prevent resale
- The costs of separating markets are less than extra revenue
Example of buying tickets in advance
Buying a ticket in advance means that you often get a cheaper price because your demand is more elastic. Buying a train ticket last minute is often more expensive because demand becomes inelastic. If you buy airline tickets from Ryanair, you will notice how the price can vary. Ryanair use computer models to maximise revenue from ticket prices. If demand for a flight is low, tickets will remain cheap. If demand is high, they will put up prices to get maximum revenue from remaining seats.
Although consumers can use internet to check prices, the firm can still control which prices people use. You can’t resell tickets as the person who bought ticket has to be there.
Diagram for Price Discrimination
In the past UK car dealers could sell car makes at a higher price in the UK. However, the internet means it is easier to see that the same brands are cheaper in Europe, so people go there and buy, reducing the geographical price discrimination. The Internet can even be used to order the right hand drive.
Related
It’s interesting to note how perfect competition (aspirational though it may be) is becoming ever nearer as the internet becomes more prominent in consumer trade.