4.1.5.7 Advantages/disadvantages of price discrimination

high revenue, more investment, low prices for some, manage demand

Advantages of price discrimination

enable some firms to stay in business who would have made a loss, e.g. train companies

Advantages of price discrimination: high revenue

increased revenue can be reinvested

Advantages of price discrimination: more investment

cross-subsidisation

When price discrimination leads to lower prices for some

• old people more likely to be poor and are given lower fares from train companies

• customers willing to research ‘special offers’ will be rewarded with lower prices

airlines can use this to encourage people to travel at unpopular times, avoiding over-crowding and spreading out demand

Advantages of price discrimination: manages demand

high prices for some(allocatively inefficient), reduced consumer surplus, potentially unfair

Disadvantages of price discrimination

people traveling at busy times

AO2 for high prices from price discrimination

contributes to inequality

Disadvantages of price discrimination: reduced consumer surplus