WHY DO RAILWAYS HAVE DIFFERENT PRICES FOR DIFFERENT TIERS OF TRAVEL?

PRICE DISCRIMINATION:

        Exploiting demand characteristics to allow the same product to be sold at various prices unrated to the cost of supply is price discrimination. It can also be defined as the practice of a firm selling a homogeneous commodity at the same time to different purchasers at different prices.It is a pricing strategy that charges customers different prices for identical goods or services. Purely said, it is when the seller will charge each customer the maximum price they are willing to pay.

        Industries that most commonly use price discrimination includes the travel industry and telecom industry. There are three types of price discrimination:

1. FIRST DEGREE: It is the perfect price discrimination where the seller must know the absolute maximum price that every consumer is willing to pay.

2. SECOND DEGREE: It is the price discrimination by self selection where the price of the product or the service varies according to the quantity demanded.

3. THIRD DEGREE: It is the market or segment based price discrimination where the price of the product or service varies by attributes such as location, age, sex, economic and social status.

        The purpose of the price discrimination is to capture the market's consumer surplus. Price discrimination allows the seller to generate the most revenue possible for a product or a service.

METHODS OF PRICE DISCRIMINATION: They include coupons, age discounts, passes,  occupational discounts, rental incentives, gender based prices.

EXAMPLE OF PRICE DISCRIMINATION:

        The travel industry conduct substantial portion of their business using price discrimination. Travel products and services are marketed to specific social segments. Railways usually assign specific capacity to various booking classes and also prices fluctuate based on time of travel. Like there are general compartment, 1st class AC, 2nd class AC which are classified based on price discrimination only.If you are looking for the journey with minimum or lower side of budget, booking early helps and closer to the time of journey, the fare rises showing that those people are likely to be willing and able to pay a much higher price.

        So, price discrimination may able a business to turn a loss into a small profit- or a business activity can keep going, rather than close down. This is obviously beneficial to consumers because it increases the choice of goods and services. It is one way to manage demand. For instance, if there is no price discrimination, morning rush hour trains would be even more overcrowded and t can be used to give an incentive for some people to go later in the day. This should mean that those who have to travel at rush hour benefit from less congestion that is the place that is extremely crowded.