Despite the unfortunate choice of the term used to describe this practice it is not necessarily unethical nor even politically incorrect. It is the practice of charging — or attempting to charge — different prices to different groups of customers, in order to earn the maximum revenue that each segment will bear.
Surrogate variables must often be used to discriminate between groups. For example, an airline charges more when customers need flexible, refundable tickets or when they must fly on short notice and on specific dates. The assumption is that the majority of people who require tickets under these conditions are traveling for business reasons and will be willing to spend more for a ticket than someone traveling for pleasure.
In other cases group assignment is specific, such as offering student prices under the assumption that students have less disposable income and therefore will be more likely to forgo the purchase if required to pay the full price.
Also refered to as "price discrimination".
Contributed by: MarcommWise Staff
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