A more local example of price discrimination among market segments is
the different prices charged by movie theatres for adults and seniors. The
cost to the theatre of providing a seat to any customer is independent of
the customer’s age. But the two market segments contain consumers who
are thought to have different elasticities of demand, the adults with the
less elastic demand than seniors. The profit-maximizing pricing policy by
the theatre is therefore to charge a higher price to adults than to seniors.
This same logic applies to many goods and services for which there are
“seniors’ discounts.”
The example of seniors’ discounts at theatres also illustrates an important
point about how the firm prevents arbitrage when price discriminating.
When you buy a ticket to see a movie, you are buying a service rather
than a tangible good. You don’t take anything away with you after the
movie—you are really just paying for the right to see the movie. This
aspect of the product makes price discrimination easier to enforce. A
young adult trying to circumvent the price discrimination could buy a
senior’s ticket, but upon entry to the theatre that person would be
stopped and easily recognized as ineligible for the seniors’ discount.
Price discrimination is easier for services than for tangible goods because for most services the
firms transact directly with the final customer and thus can more easily prevent arbitrage.That price discrimination is often more difficult to sustain with tangible
goods explains another familiar observation. Grocery stores and
drugstores often have promotions with widely used products (toilet paper
and paper towels, for example) on sale at heavily discounted prices. What