Price discrimination on the internet
Explanation
Under certain conditions, companies have a pricing policy leeway in order to sell their products. They use the strategy of price discrimination . This means offering a product or service at different prices on the basis of different criteria in order to skim off the maximum willingness of the customer to pay and to bring about an increase in consumption . This strategy is also known as “ skimming ”. Customers are selected according to specific characteristics. Income and place of residence play a major role here, as purchasing power is easy to derive and can be used for price discrimination.
Price discrimination on the internet
The Internet enables companies to design their pricing policy in a cost-effective and flexible manner. Hence, e-commerce is very well suited for a price discrimination strategy. They create a lot more incentives to buy. The airline ticket market is an example of this different pricing . The characteristics of the time of booking, the duration of the trip and the destination are used to set prices. In addition, there is the fact whether an Apple computer or a Windows PC was used for the booking, which means that the customer is willing to pay.
Differentiation from the concept of price differentiation
In the German-speaking area, price discrimination and price differentiation are mostly used synonymously, while in the Anglo-Saxon-speaking area both terms are separated from each other.
Forms of price discrimination
Price discrimination can be seen from the point of view of companies or from the point of view of customers. From the point of view of the company, a distinction must be made between first , second and third degree price discrimination . This point of view was coined early on by Arthur Cecil Pigou (1877–1959) and can still be found today in the Anglo-Saxon region.
From the customer's point of view, one can also differentiate between hidden and obvious price discrimination. Obviously, the prices for products in the electronics sector fall after the market launch or the vacation in the off-season is cheaper than in the high season. Hidden price discrimination can often be found, for example, at auctions on the Internet. With a high number of bidders, the probability of skimming off the maximum willingness to pay is very high.
Conditions for price discrimination
Companies pursue the goal of using price discrimination to generate additional sales and increase consumption. However, the amount consumed decreases over time as the market is saturated. Companies in a dominant monopoly or oligopoly position then have an advantage.
The most important prerequisite is the willingness of customers to pay different prices for a homogeneous product. Companies should also prohibit trading of the product between customers. Ultimately, the target groups must be distinguishable and the costs for market segmentation must not be greater than the additional profit . The most important asset here is information about customers and competitors.
Legal Aspects of Price Discrimination in the EU
When an EU citizen buys goods online , prices may differ between countries due to different delivery costs or tax systems. When purchasing without cross-border delivery, the prices for the product or service purchased must be the same as for buyers residing in the country concerned, for example when collecting the goods themselves.
Relation to increased consumption
Basically, the objective of price discrimination is the maximum absorption of willingness to pay. The increase in consumption takes place at the beginning of the strategy, where different target groups are addressed with different prices for the same product. After the market is saturated, consumption gradually decreases.
literature
- Björn Buchholz (author), Robert Gross (author), 2014, comparison portals for flights. Price discrimination on the Internet, Munich, GRIN Verlag, https://www.grin.com/document/309880
Individual evidence
- ^ Hermann Diller: Price Policy . 4th edition. Kohlhammer, Stuttgart 2008, ISBN 978-3-17-019492-2 , pp. 576 .
- ^ Arthur C. Pigou: The Economics of Welfare . Ed .: Macmillan and Co, Limited. 4th edition. Macmillan and Co, Limited, London 1932.
- ↑ Varian: Fundamentals of Microeconomics . Ed .: Hal R Varian. Oldenbourg Wissenschaftsverlag (1989), Munich 1989, ISBN 3-486-21195-1 .
- ↑ Pricing and Payments. European Union, November 28, 2018, accessed January 1, 2019 .