University Economics Assignment: Price Discrimination and Coupons

This economics assignment examines the concept of price discrimination, specifically focusing on how businesses utilize coupons to segment their market and maximize surplus. The assignment explains third-degree price discrimination, where sellers differentiate prices based on customers' reserve prices and elasticity of demand. It highlights how coupons allow businesses to target price-sensitive customers, who invest time in finding discounts, and less price-sensitive customers who are willing to pay a higher price. The assignment provides real-world examples, such as shopping mall rebates and online coupon usage, illustrating how businesses exploit differences in demand elasticity. The student describes personal experiences with coupons and analyzes the fairness and legality of such practices, supported by economic theories and academic references.

Running Head: ECONOMIC ASSIGNMENT
Economic Assignment
Name of the Student
Name of the University
Author note

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Table of Contents
Price discrimination through coupons.............................................................................................2
References and Bibliography...........................................................................................................5

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Price discrimination through coupons
Sellers engage in price discrimination to maximize surplus. Offering discount or coupons
is one effective means of price discrimination. With the use of coupons buyers are distinguished
in terms of their reserve price (Baumol and Blinder). Customer having a highly elastic demand
usually spend a lot of time to find coupons, which lowers the price of their desired goods
effectively. In contrast, buyers having not so much price sensitive demand does not invest much
time to find coupons. It is a form of third degree price discrimination where market is segmented
according to reserve price of the customers.
Figure 1: Third degree price discrimination
(Source: as created by Author)
There is nothing unfair or illegal in this form of price discrimination. Discrimination is
only illegal when discrimination is made on the basis of religion, race, nationality or gender. It is

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not unfair as long as it does not violate rules of anti-trust laws or price fixing law. However, with
coupons or third degree discrimination, price differentiation is based on elasticity of demand.
People often wait for a long to have a coupon (Czerny and Zhang). For those who cannot wait
have to pay a higher price. In some situations, this discounting price can actually beneficial for
all parties of transaction. The second argument is that exchange is completely fair if it involves
willingness of buyers or sellers (Cowan). There is no law by which sellers are obliged to offer
identical goods and services at identical price. Therefore, there is no need for laws against this
form of discrimination until it deprives some people in the society.
The shopping mall nearby to my locality often offers rebate or coupons for making
shopping over a certain amount. The shopping coupons are provided for shopping of over $100.
Last time I had done my Christmas shopping from the mall and received coupons. As clothing
has a relatively elastic demand for me, I use these coupons for shop next time. Sellers are able to
make price differentiation because different customers have different elasticity of demand. Good
has a relatively inelastic demand when price change has only a negligible effect on quantity
demanded of the good. In case of price elastic demand, change in price have a much larger effect
on quantity demand. The sellers take advantage of this elasticity differences and charge different
price to different consumer group (Cowen and Tabarrok). A low price is charged for buyers
group having a relatively elastic demand or more price sensitive. For buyers who are less
sensitive to price pay a higher price.
My younger brother love to watch Harry Potter’s movie and in his last birthday he asked
for a set of Harry Potter DVD. I planned to buy the DVD set from Sears.com, an online shopping
platform. The site offers the DVD set at $40 plus shipping costs of approximately $10. However,
a customer could make shipping free by availing online coupons and mailing it to the site. My

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brother’s birthday had come so near that I could not wait for coupons the ordered the set of DVD
for $50 (DVD cost + Shipping charge)

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References and Bibliography
Baumol, William J., and Alan S. Blinder. Microeconomics: Principles and policy. Cengage
Learning, 2015.
Cowan, Simon. A Model of Third-Degree Price Discrimination with Positive Welfare Effects.
No. 829. 2017.
Cowen, Tyler, and Alex Tabarrok. Modern Principles of Microeconomics. Palgrave Macmillan,
2015.
Czerny, Achim I., and Anming Zhang. "Third‐degree price discrimination in the presence of
congestion externality." Canadian Journal of Economics/Revue canadienne d'économique 48.4
(2015): 1430-1455.
Escobari, Diego, and Manuel A. Hernandez. "Screening and Price Discrimination with
Unobserved Consumer Types." (2015).
Fabra, Natalia, Juan-Pablo Montero, and Mar Reguant. "Price Discrimination with Search."
(2015).