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Price Discrimination Strategies

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Should the company use price-discrimination strategies to improve profitability?

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Price-discrimination strategies are assessed in this solution, with a specific example to simulate a simple price discrimination strategy based on student discounts. The feasibility of proposed increase in tickets prices from $850 to $890 is also examined. This solution is 530 words.

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The answer is in brainmass.doc file attached below.

In order to decide whether it's feasible or not to charge customers with different prices for different demands we need to try the possible prices for different types of customer types (*with different price elasticities) and see whether we can make more profits than the current option or not. We should also keep in mind that our average elasticity will be somewhere between the elasticities of different customer segments.

As we can see in the excel spreadsheet; our current profitability increases its maximum at 75 customers ( $20,000). After this point , profits start dropping again. Thus, we can tell that our marginal revenue is very close or equal to marginal costs at this point.

Let's analyze the effect of price sensitivity for ...

Solution provided by:
Umut Oltulu, MBA
Education
  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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