Price discrimination or differentiation refers to a situation where similar goods or services have different rates or prices, by the same provider or another provider.
There are many types of price differentiation, ranging from first degree to fourth degree price discrimination. Instances of price discrimination include retail price discrimination; discrimination in the travel industry; coupons and premium pricing (Philips, 1999, p. 7, 56). The travel industry faces one of the widest forms of discrimination. Prices of transportation services in this industry are subject to change for many different reasons.
In the airline industry, for instance, the price is controlled by the demand, time of the day, the class of transport and additional services offered. When one travels during summer seasons when the demand is high, they are likely to pay exorbitantly as opposed to when one travels during periods of low demand. In the same vein, a transport industry is likely to set high prices for the same transport service (in order to attract upmarket clientele). On the other hand, companies opt for the setting of low prices in order to attract low-end clients (Ben-Yosef, 2005, p.77, 870).
In most cases, the justification of price discrimination is fair. It is one of the ways the supplier reacts to the demand of the commodity. The client or customer who feels that prices are unfriendly should look for cheaper alternatives. A company may be hit by losses and adverse weather. It is often impossible to recover from such setbacks by charging regular prices.
At times, airplanes have to travel for long distances with only few passengers on board (Ben-Yosef, 2005, p.78, 881). For the airline company to make a profit, or to break even on its costs, the management has to employ techniques of price discrimination. Therefore, price discrimination enables companies stay afloat in times of recession while recouping the costs during economic seasons of boom. Many companies would be insolvent, if they won’t use a price discrimination tool.
Price discrimination is justifiable.