Wholly Bagels in Wellington has this great student special which I often take advantage of: in the last hour before closing they charge 30% less to students. Much as I love the special, I can’t figure out why they run it that way. I can think of three reasons they might price discriminate in this fashion:
- Students have more elastic demand for gourmet bagels than other consumers and so charging them less raises profits. This is classic price discrimination, but I don’t understand why you wouldn’t want to discriminate in this fashion for the entire trading period.
- Demand for bagels in the mid-afternoon might be more elastic than during the lunch hour and so prices might be lower in the mid-late afternoon than in the morning. But then you’d expect the afternoon discount to apply to all consumers, not just students.
- Bagels go stale during the course of the day so the value of a bagel in the afternoon isn’t as high as the value of a bagel in the morning. Perhaps they’re riding down the demand curve throughout the day and capturing the last bit of the demand curve in the afternoon by lowering their prices. Morning consumers value the bagels more (they’re really more of a breakfast/lunch food, I think) so they’re willing to pay a premium for the fresher bagels and aren’t tempted to switch to afternoon consumption. Again, if this were the rationale, I’d expect the discount to apply to all consumers.
Any way I think about it, the discount should either be to all consumers or to students for the entire day. Why would it be only to students in the afternoon? Help!