Global Economy, Markets and Strategy

Joshua Foster at Ivey

Agenda

  1. Case: Pink Tax: Gender and Other Price Discrimination Factors.
  2. Necessary conditions for price discrimination
  3. Three degrees of price discrimination
  4. Example: How price discrimination can be advantageous

What is price discrimination?

What we're not talking about.

  • There is a sale of an article to a purchaser;
  • A rebate, allowance, price concession or other advantage is conferred on the purchaser; and
  • There is a practice of not making this advantage available to competing purchasers of similar quantities of the same articles.

Which markets regularly price discriminate?

1)2)
3)4)
5)6)

How do firms in these markets implement price discrimination?

What should Diana Kelly do?

Would women want this cream more than men?

Does this mean women have a higher willingness to pay for the cream?

Who thinks Kelly should market it differently to men and women?

Is there any concern of backlash from female consumers in doing so?

Are there any differences in marketing that change the cost/quality of the product, or is it all just emphasizing the same qualities differently?

Necessary conditions for price discrimination.

  1. Ability to identify consumer groups by their willingness to pay.
  2. Prevent the ability for resale (i.e. no arbitrage)

Degrees of price discrimination.

  1. Perfect price discrimination.
  2. Menu-based priced discrimination.
  3. Taste-based priced discrimination.

Example: consider a standard duopoly market.

  • Corn Flakes vs. Wheaties
  • Assume each box of both costs $1 to produce.

Suppose consumers are indifferent between the two.

  • (i.e. They only want the one that is cheaper.)
  • What will happen to prices?

Now suppose some consumers have a brand preference.

  • Corn Flakes offers a $1 coupon to the Wheaties "fans"
  • What will happen to prices?

By raising the price to $2, Corn Flakes can profit from their "fans" while also forcing Wheaties to keep their price low.

Set aside the legal aspect for a moment.

  1. Is it ethical to offer "identical" products for different prices to different consumer groups?
  2. Are there ethical limitations to which markets should be allowed to price discriminate?

Key takeaways.

  1. Price discrimination is categorized into three "degrees".
  2. The most common of which is third degree (taste-based discrimination).
  3. When markets can be segmented, price discrimination is a powerful tool for profit maximization.
  4. Issues regarding fairness limit the extent to which price discrimination can be implemented.