I am from Texas, and I love price discrimination.
Um… what? Those seem like two very different things. But, to be honest, that’s what this blog is about.
Let’s start with what price discrimination is. When you last went to the movies, did you see an adult price and a senior/child price? Which one was more? Well the adult, of course. Is that unfair? Are you mad about that? Well no! It is just economics.
Most likely, adults are willing and able to pay more to go to the movies than children. Remember when we talked about wedding cakes and elasticity? It relates here. Children and seniors are more sensitive to movie ticket prices (more elastic) so the theater charges them less so that more people will go. To the adults who are less price sensitive (higher income being one reason), they can charge a slightly higher price without discouraging too many people from coming.
Here’s another example. And where our food comes in. You know those tortillas you buy at the grocery store? They are sometimes sold in the “international” section or under the “Mexican Food” sign, along with hard tortilla shells and taco seasoning for your ground beef. Do you know where else you can buy them? In the wrap section!