Putting the “discrimination” into price discrimination!

Discrimination usually has negative connotations so when teaching price discrimination, it is important to get across that treating people differently in terms of pricing is not in itself a bad thing. Although it is often marketed as a “discount”, most people accept that different groups of people are charged different amounts depending on their ability to pay and / or elasticity of demand, for example at the movies there are usually different rates for students, adults, and seniors But this example is useful to compare with genuine price discrimination as it is trying to make a political statement.

Students at the University of California’s Berkerley campus are going ahead with a bake sale where Asian and African-Americans will be charged less than whites, with women also benefitting from lower prices. The price list for the baked goods is as follows:
The students are protesting against affirmative action in university admission schemes and argue that if it is OK to have different rules for different races (and gender) then it should be OK to charge them different prices!

Although this is a political and not an economic argument, it could make for an interesting discussion in class as to how far price discrimination should be allowed to go. It seems perfectly acceptable to use it in terms of age (student and senior discount) but most people would argue that gender / ethnicity is a no-go area. But there are probably situations where people of different gender / ethnicity have different elasticities of demand for a good. And is having cheaper prices in a shop in a low-income area with a predominance of one ethnic group an example of price discrimination or not? And when I ask my male and female students how much they paid for their haircut the differences are often astounding!

And I’ve included my favourite price discrimination picture below. Enjoy the discussion!