What airline tickets have in common with grocery store coupons

When I wrote earlier this week about how airlines set ticket prices, I learned a new term — “price discrimination.”

I understand this is a common phenomenon studied by economists. At its most basic level, the premise is simple: You charge people based on their ability (or willingness) to pay. Hence, airlines generally charge leisure travelers (early bookers) quite a bit more than late bookers, who are often business class travelers.

I was a bit surprised when Jan K. Brueckner, a professor of economics at UC-Irvine, compared this to grocery stores that offer coupons. But it make some sense.

“The logic there is that grocery store coupons serve to give a price discount to lower income shoppers,” he said. “They are the only ones who are going to spend the time clipping coupons. The coupons essentially generate two tiers of customers. There’s the lower price customers and everyone else gets a higher price.”

I suggested restaurants should start pricing discriminating as well. I have always wondered why a nice restaurant usually charges the same price on Saturdays as it does on Wednesdays. After all, for many diners, especially those on dates, that Saturday meal could more valuable.

But Brueckner said that might be going too far.

“Restaurants don’t do it,” he said. “They probably don’t do it because it’s kind of unseemly. People won’t like it. They wouldn’t like to see a menu with ‘day of the week prices.'”

What do you think of price discrimination? Is it fair? Should more sectors start doing it?

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