Question 25

Price discrimination

Price discrimination occurs when a seller charges different prices to different customers for the same product or service, which is exemplified by the manager charging the 40-year-old adult $5 for a drink while charging the 21-year-old adult $9 for the same drink.

A) Price discrimination

This option accurately describes the scenario, as it highlights the practice of charging different prices to different individuals based on certain characteristics, in this case, age. The manager's pricing strategy reflects an attempt to maximize revenue by differentiating prices based on the perceived willingness to pay of different age groups.

B) Bait and switch

Bait and switch refers to a deceptive marketing tactic where a business advertises a low price for a product but then tries to sell a more expensive item. This option does not apply here, as the manager is not advertising a lower price and then switching to a higher price; rather, the prices are set differently from the beginning based on age.

C) Predatory pricing

Predatory pricing involves setting prices extremely low to eliminate competition and gain market share. This scenario does not involve undercutting competitors but rather a strategic pricing difference based on customer demographics. Thus, it is not relevant to this context.

D) Price fixing

Price fixing occurs when competing businesses agree on pricing strategies to control market prices, which is illegal and anti-competitive. In this situation, the manager is not colluding with others to set prices; instead, they are independently deciding on different prices for different customers, making this option incorrect.

Conclusion

The correct answer, price discrimination, is definitively appropriate in this context as it captures the essence of the manager's pricing strategy based on customer age. All other options either misinterpret the situation or describe unrelated pricing strategies, solidifying that price discrimination is the only applicable concept here.