Price Discrimination

Canny pricing in a slowdown

There is a super feature on pricing strategies from Adam Jones’s management blog on the Financial Times web site - available here

Canny businesses are willing and able to adjust their pricing strategies to suit ever changing business consumers. The key seems to be in having good market intelligence about which consumers have a demand that is sensitive to price and those who spending on goods and services is affected more by changes in real take-home income. Deep discounting is often observed in an economic slowdown or outright recession as businesses look to shift unsold stock, maintain sales volumes and generate extra cash to tide them through the tough times. But as the FT blog points out, offering discounts to consumers can risk unleashing an unwelcome price war (which damages profit margins) and overly-aggressive discounting can ultimately damage the brand.

There is a bit more on pricing do’s and don’ts in a recession here

Battle of the energy drinks

I popped into my local Sainsbury’s this morning for the groceries and I came across a staggering price differential between Red Bull - 250ml individual cans on sale for 88p or a pack of 4 for £3.29 - and Sainsbury’s own-brand caffeinated drink Blue Bolt which has been on sale for some time at just 26 pence for a 250ml can - less than one third of the price of a can of Red Bull.

Revision: Business Pricing Strategies

This two page revision note is designed for A2 economists and considers some of the factors that can influence the pricing behaviour of businesses - notably a move away from maximising behaviour when setting prices and the impact of increased market contestability and technological change.

Popcorn and price discrimination

Why do movie theatres sell popcorn, coca cola and hot dogs for such high prices?

On the surface it looks like a classic case of the movie theatre being able to capture the consumer surplus of cinema-goers once they have bought their ticket to see a film. Say for example you might have been willing to pay £8 to see There will be Blood at your local cinema, but that the ticket price is £6. That implies a consumer surplus of £2. The cinema might try to extract that from you by raising the price of your carton of popcorn well above the marginal cost of supply; you feel like you have got a good deal by getting in to see the film for £6 and psychologically you are perhaps more willing to fork out a little extra for your movie fuel. After all, once inside the theatre, you are hardly likely to go through the hassle of exiting back onto the high street to find a cheaper supply of pop corn or drinks?