Movie, theaters, airlines, and other businesses often charge customers different prices based on time of the day, age, and purchase dates. Why?
Movie theaters, airlines, and other businesses frequently employ differential pricing strategies that charge customers different rates depending on various variables like time of day, age, or purchase date. Differentiated pricing practices serve multiple objectives including increasing revenue generation while controlling demand and optimizing resource use.
At its core, differential pricing enables businesses to maximize their revenue potential. Offering various prices allows companies to capture different segments of the market: customers willing to pay premium prices may opt for peak time slots or preferential services while lower off-peak prices attract price-sensitive clients who may not want to pay higher rates (Bonatti, Alessandro, and Gonzalo Cisternas, 756). This ensures businesses can cater to multiple customer segments while extracting maximum value out of each customer.
Differentiated pricing also helps businesses manage demand and balance capacity utilization. Businesses can charge higher prices during peak hours or seasons to control the number of customers and prevent overcrowding while managing employees’ workload more easily. Conversely, offering discounted prices during off-peak periods encourage customers to use extra capacity that would otherwise go underutilized.
Age-based pricing has long been practiced within industries like entertainment and travel, offering differential prices depending on age to meet different demographic groups’ individual needs and budgets. Senior citizens or children could qualify for discounted tickets to participate in services or experiences at more cost-effective rates (Bonatti, Alessandro, and Gonzalo Cisternas, 761). This approach helps businesses attract a broader customer base while creating inclusivity in pricing structures.
Differentiated pricing can also be employed strategically to incentivize early purchases or fill empty seats. Businesses can increase demand during specific periods or optimize resource usage by offering discounted rates for bookings or last-minute deals. This helps in preventing revenue losses due to unsold inventory or underutilized capacity.
Importantly, differential pricing strategies must be carried out ethically and transparently if they are to work for businesses. Customers should understand why prices differ between products or services they purchase and feel that they receive fair value for their investment (Bonatti, Alessandro, and Gonzalo Cisternas, 781).
Provide an example of price discrimination from your personal experience that you thought was unfair. Do you still believe this price discrimination is unjustifiable?
Price discrimination was something I experienced and found unacceptable at a popular theme park that offered different ticket prices depending on the age of visitors, including significantly higher costs for adults compared to children. Being an adult, it felt unfair and disrespectful that adult visitors paid a greater sum for what essentially offered the same experience than its younger visitors.
A park’s pricing policy may appear justifiable because adults can afford more than children. However, this approach needs to consider adults’ financial limitations and budgetary considerations. Furthermore, it fails to acknowledge that all generations can enjoy its attractions equally.
Additionally, the park’s pricing strategy did not take into account any additional benefits or services provided to adult visitors. Rather, it took advantage of adults’ willingness to pay more for similar experiences based solely on demographic differences rather than true costs or values. This form of price discrimination seemed unreasonable and unfair and clearly violated any objective criteria that may justify price differentials between demographic categories or value calculations.
Price discrimination can sometimes be justified when costs vary significantly or tailored services are offered. Still, in this particular instance, it felt arbitrary and unfair, creating the impression that the park was taking unfair advantage of its customers without explaining its price disparities.
At first glance, price discrimination at the theme park appeared unjustifiable. It seemed solely based on age without any valid reason to justify such price differences. While price discrimination may be appropriate under some circumstances, for such practices to remain fair, they should include legitimate factors as justification and offer benefits or services that justify price variation.
Works Cited
Bonatti, Alessandro, and Gonzalo Cisternas. “Consumer scores and price discrimination.” The Review of Economic Studies 87.2 (2020): 750-791.
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