Sunday, December 21, 2008

Multimarket price discrimination on an island

Could some of the price difference between goods in Northern Ireland and Ireland be down to price discrimination by retailers? Clearly, some of the difference is due to difference in VAT in the two states and a lot of it is accounted for by the recent depreciation (collapse?) in the value of sterling. However, the Irish government has written to British high street retailers in recent days expressing concern over the high prices of goods in their outlets in the Republic compared to the North. Is this what economists call third-degree price discrimination, i.e. charging different prices in different market segments?

The retailers are charging a higher price to those not willing to travel and a lower price to more price sensitive customers who are willing to travel to the North. Is the government moral outrage justified? Maybe, but then they should be also writing to the following:

  • Cinemas who charge higher prices to adults than students.
  • Retailers who charge higher prices to some shoppers than those who gather money off coupons and bring them to the shop.
  • Restaurants who charge higher prices to diners than to those who arrive before 7pm.

I'm not a student, I don't clip coupons and the babysitter doesn't arrive early enough for me to avail of early bird specials. It is appaling that I have to pay a higher price than others for these exact same goods. The government should be writing letters ensuring that I get to these lower prices. Or maybe the moral outrage about cheaper prices in the North is not justified at all and the government is engaged in is patriotic tokenism?

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