![]() For example, Tesco may send coupons to regular customers to get special offers, e.g. Source: energy pricesįirms often give coupons to selected consumers. This graph shows that the average price of electricity falls, as firms get bigger and consume more electricity. Therefore, the electricity company charge a lower rate. However, after the first 100 units of electricity, your demand is less essential, so you become more price sensitive. The logic is that the first 100 units of electricity are essential, and therefore demand is more inelastic. After this first 100 units, consumers get charged a lower rate. The first 100 units of electricity consumed are charged at a higher tariff, e.g. If I change dates to leaving or arriving on the weekend, the price falls to £450.įor electricity, consumers get charged different tariffs depending on the quantity consumed. For a flight from Mon to Fri, the price quoted is usually around £1,500. I often go to New York for a week in October. If you stay for over the weekend, the price will be lower, as business travellers will not want to stay over the weekend, just to get a cheaper flight. Mon to Fri will be more expensive because these are typically taken by business travellers. During the peak holiday season in August and Easter, the price will be higher because demand is greater and more inelastic. This is a type of third-degree price discrimination.Īirlines charge different prices depending on the season and day of the week. It is also a clever marketing strategy because from a distance, it is advertising ‘cut-price fuel’ you only notice the ‘2 days a week’ on closer inspection. They will continue to buy when most convenient. Most consumers will not take the trouble to visit the petrol station on those two days. This takes planning and only the most price elastic consumers will buy on these cut-price days. The logic is that only the most price-sensitive consumers will take the trouble to find out which two days have cut-price fuel and then drive to the petrol station on those days. The petrol station isn’t even telling you which days have cut-price fuel. This petrol station is offering cut-price fuel for two days a week. Its use is widespread, such as first and standard class. This is not true price discrimination but uses the same principles – finding customers with more inelastic demand. For example, ‘premium unleaded petrol’ may cost the firm an extra 1p over standard unleaded, but the firm may sell this premium unleaded at 5p. In these examples, consumers pay a premium for a slightly more expensive option. In many examples of ‘price discrimination’ consumers are charged different prices for a similar good. Also known as reverse price discrimination.
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