Reference no: EM133488585

Case Study: The objective of price-discrimination schemes is to separate buyers with high willingness-to-pay from buyers with low willingness-to-pay and charge each group a different price. If sellers are able to successfully separate the buyers, they can generate higher sales revenues. For example, buyers who purchase large volumes are offered lower prices than people who buy in low volumes (e.g., buy three and get one free). Also, the prices may be determined by observable characteristics of the buyers, and examples include senior discounts at restaurants or discounts offered to active members of the military. Finally, some price discrimination schemes allow the buyers to decide if they get a discount, and examples include store coupons or lower fares paid by airline passengers who purchase tickets at least two weeks in advance. Firms could also use computer algorithms to offer each buyer a different price based on information about online search history, past purchases, or other known characteristics of the customer. While algorithmic pricing is not widely used at this time, it is increasingly feasible given recent innovations in large-data tools and artificial intelligence. For this reason, researchers involved in antitrust and competition law are presently debating the merits of this potential form of price discrimination. Please provide a graduate-level response to each of the following questions:

Questions:

1. Do you take advantage of any volume discounts or group-based discounts? If so, please provide an example.
2. My father is well over 65 years of age, and some stores automatically deduct a senior discount from his purchases. Do you think it is fair that discounts are automatically applied to some buyers, or should it be required that buyers request such discounts? Does it matter?
3. Suppose algorithmic pricing becomes more widely used, and each buyer is offered a potentially different price based on search history, past purchases, time of day, location, etc. Would this be a fair practice? Should this practice be allowed as long as government authorities can review the pricing algorithm to prevent illegal forms of bias?