Answer to Question #56744 in Microeconomics for akib

Question

Fast-food stores often charge higher prices for their products in high-crime areas than they charge in low-crime areas. Is this an act of price discrimination? Why or why not?

Answer 1

Firstly, we need to define term ‘price discrimination’. Price discrimination is a pricing strategy when identical (similar) goods or services are transacted at different prices. The main task of price discrimination is to take maximum payment (or near maximum) for the good/service that consumer can pay. In the case of fast-food stores in high-crime areas, in my strong opinion, risk fee is included in product price. As a result, prices are higher than their average level.