Saturday, October 4, 2014

Learning economics through pictures - price discrimination and cruising

Price discrimination is the practice of charging different buyers different prices for the same product, even when there are no cost differences.  (Note, the word "discrimination" has a negative connotation but price discrimination can actually improve the well-being of society.  Further, military and senior discounts are forms of price discrimination.)

Here is a picture of cruise pricing on  All prices are for the same cruise, just different dates.  

This is a classic example of price discrimination.  The cost to the cruise company is the same on for each trip.  The cruise company has to pay the same amount for fuel, materials, and labor.  However, the demand to cruise from December 29-January 2 is considerably higher.  The 4 day stretch around New Years Eve is a popular time to celebrate, many people are off from work and almost all kids are off from school.  Because of this difference in demand, the same four day cruise costs 350% more during peak times than during the off-peak time.

The cruise industry also engages in other forms of price discrimination.  I'll post about those soon.

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