Price Discrimination and Profitability
By Arnold Kling
If we graphed use of price discrimination against profits would we find a positive slope across the economy as a whole? I doubt it, yet this is what the theory would seem to predict. Send me your thoughts.
My first reaction is that it is difficult for me to come up with an in industry where there is not price discrimination, which means the attempt to charge higher prices to customers willing to pay them. For example, software pricing is all about price discrimination. Microsoft tries to charge less to educational institutions and to home users than it charges business users. Drug companies try to charge less to groups that can afford to pay less. I came away from reading Information Rules, by Carl Shapiro and Hal Varian, convinced that price discrimination is a key survival strategy in markets for information goods.
For Discussion. Tabarrok cites airlines and universities as examples of industries where price discrimination is rampant and profits are low. What explains the low profits in those industries?