Why do companies charge different people different prices for the exact same product?
Price discrimination is a common business strategy where companies charge varying rates to different customers. This video explains why businesses use this tactic to maximize profits by leveraging the different demand elasticities of their target groups.
Price discrimination occurs when firms identify that different customer segments have unique demand curves. By setting distinct prices for these groups, companies can capture more value than they would with a single, uniform price. Common examples include movie theaters offering senior discounts and software companies providing lower rates to students compared to businesses.
The strategy relies on understanding the elasticity of demand for each group. When these elasticities vary, adjusting prices accordingly becomes a more profitable approach. The video also explores the role of arbitrage—the practice of buying low in one market to sell high in another—and examines how these principles are applied within the airline industry.
