ZHEJIANG GONGSHANG UNIVERSITY

SCHOOL OF BUSINESS ADMINISTRATION

COURSE: MICROECONOMICS

STUDENT NAME: Lillian Kobusingye

NATIONALITY: UGANDAN

STUDENT NUMBER: 21010019014

WEEK TWO: Elasticity and Pricing Power

Elasticity and Pricing Power: Why Different Consumers Pay Different Prices
Consumers in a relatively inelastic submarket pay a higher price, while those in a relatively
elastic sub-market pay a lower price. Price discrimination charges customers different prices for
the same products based on a bias toward groups of people with certain characteristics.
My two examples are as below:
The Canadian entertainment company, Cineplex, is a classic example of a firm using the price
discrimination strategy. Depending on the age demographic, tickets for the same movie are sold
at different prices. In addition, Cineplex charges different prices on different days (Tuesday
being the cheapest and weekends being the most expensive). The following is a diagram from
Cineplex for a movie screening on a Monday.
As indicated in the diagram above, different age demographics face different prices for the same
screening. This is an example of third-degree price discrimination.
Price Discrimination in Increasing a Firm’s Profitability
Consider a firm that charges a single price for an apple: $5. In such a case, it would lead to one
sale and total revenue of $5:
 
 
Now, consider a firm that is able to charge a different price to each customer. For example:
 $5 for the first consumer
 $4 for the second consumer
 $3 for the third consumer, and so on.
 
In such a situation, the firm is able to increase its revenues by selling to customers who were
originally not going to purchase, by offering price = each customer’s willingness to pay. This
leads to five sales and total revenue of $5+$4+$3+$2+1 = $15.
 
 
As indicated above, price discrimination allows a firm to reap additional profits and convert
consumer surplus into producer surplus.