Hands off! A Case for Price Discrimination

Everyone knows that discrimination is wrong. Of course, everyone in that circumstance would be assuming that discrimination was referring to judging people by their underlying traits, but it becomes very easy for the meaning of the word to take on a negative connotation that can be used to inform policy in unhelpful ways. Price discrimination is often maligned as a tool of big business to keep small businesses in their place or drive them out of the market. Price discrimination by wholesalers directly cuts costs for bigger businesses, so it is easy to see how it could be perceived as an unfair advantage. The Robinson-Patman act was designed to protect small local grocery stores from chain grocery stores driving them out of the market during the Great Depression. The chain stores had access to numerous deals which made the small businesses angry, as they felt they had no way to hold on to their extremely price sensitive customers. The Robinson Patman act was passed under the idea that big businesses would use their price-discrimination advantage to keep their prices low, and once the competing small business left the market, they would remove their previous discounts and charge steep markups. While small businesses have numerous hurdles to competing with larger businesses, the right price discrimination should be protected. 

Price discrimination is often extremely helpful to consumers. The people who care the most about price will typically choose to go to large discount focused retailers. These chains are those most likely to benefit from price discrimination. They are often able to offer discounts as a result of their bargaining power and attractiveness to wholesalers. It should come as no surprise that their lower costs translate to lower prices. Because of price discrimination, the market is able to cater more effectively to consumers who care about savings and consumers who care more about other factors. Additionally, price discrimination’s allowance for lower prices means that all types of retailers will feel downward price pressure when compared to a world without price discrimination. Even stores who don’t receive the benefits of price discrimination will still be incentivized to get as close to the low prices of their competitors as possible. Even when smaller retailers cannot offer prices as low as their competitors, they will be more likely to offer consumers more benefits through convenience or atmosphere. Consumers buying from high end retailers will benefit even though the high end retailers are often paying more than they would be in a price-discrimination free regime. Consumers of all kinds benefit from price discrimination.…