Price Discrimination: A Christmas Story

Price Discrimination: A Christmas Story

Frantic shoppers rushing to grab a bargain in London

There are many things to enjoy about the Christmas holiday season. For some, it is a time to reflect on their religious beliefs. Some enjoy the festivities and indulge in a big hearty meal. Others find their time well spent with friends and family. For many Commonwealth countries, hardly a year goes by without some hype and excitement about the frenzied Boxing Day sale.

Boxing Day sales are often marketed as one of the most significant sales of the year. With incredible discounts on offer, emphasis is put on how much the consumer benefits from shopping at this time. Looking beneath the surface we find an incredibly smart move by retailers to use price discrimination to boost sales and profits.

In one regard, stores are able to separate consumer types based on elasticity of demand. On the lead up to Christmas, shoppers will be demand inelastic – their purchases are to represent good intentions to one another, and those intentions had better be made known before the December 25th deadline. Those that keep Boxing Day sales in mind are comparatively demand elastic, holding off expenditures, eagerly awaiting a better price. With this in mind, producers know that gift consumption before Christmas day is likely by demand inelastic shoppers who have little room to bargain hunt, and gift consumption afterwards will be by those who are more sensitive to a good deal. Merchants can use this to price discriminate by setting high prices before Christmas, and cut them down for Boxing Day, ultimately catering to both types of consumers.

In another respect, the popularity of Boxing Day sales may act to separate consumers based on income. An overwhelming influx of shoppers flock together to make the most of cutthroat prices – those looking for leisurely retail-therapy will likely come home disappointed. People have been severely injured and even killed in the craze of Black Friday sales, America’s Thanksgiving analogue to our Boxing Day sales. While rarely so dire in Australia, this still acts as a significant quality constraint on the service that retailers provide. By keeping the atmosphere just a little maniacal, only those who can stomach the shopping experience are able to access the low prices. Assuming that leisured shopping is a normal good, a high-income individual may find the significant time and effort spent unjustified against lower prices. Instead, they may prefer to patronize stores in off-peak, higher-priced times throughout the rest of the year.

The social norm of gift-giving over the Christmas season has given retailers something incredible to work with. By identifying our predictable change in attitude towards shopping in just the span of a few days, they’re able to price accordingly to ensure high sale volumes. The side effect of frenzied post-Christmas crowds then insulates their titillating prices against the high-income spenders, who would prefer shopping at other times in the year. We may think of Boxing Day as a great time to buy, but it is also a fantastic time to sell.