Price discrimination
Question 1
Using an appropriate diagram, explain why a major airline charges different prices for the same London-Heathrow to New York-JFK flight.
Question 2
Midland Rail, which is currently aiming to
maximise sales revenue, is considering buying the franchise to offer a
new rail service from Birmingham to Manchester. If it goes ahead it will
be a local monopoly. It has undertaken market research and believes
there are two distinct markets. The commuter market, catering for those
who live in Birmingham, but work in Manchester, and the ‘casual
traveller’ market, catering for those on trips, on visits to friends and
university interviews, tourists and business travellers going to
exhibitions.
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Ticket
prices and sales Midland Rail's market research shows demand from the two markets at various ticket prices. |
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Give advice to Midland Rail about its pricing
policy, in particular:
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Should it have one price for its tickets irrespective of the type of customer, or two prices – one for each market?
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You must state the price or prices and you must justify your advice.
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Also, support your advice with a graph.
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If you argue that two prices are best, give advice about how best to operate this system.