Many supermarkets provide regular shoppers with Ă˘â‚¬Ĺ“loyalty cardsĂ˘â‚¬Âť that the shoppers swipe each time they check out. By swiping the card, a shopper receives reduced prices on a few goods, and the supermarket compiles information on all the shoppersĂ˘â‚¬â„˘ purchases. Recently, some supermarkets have switched from giving the same price reductions to all shoppers to giving shoppers differing price reductions depending on their shopping history. A manager at one company that uses this approach said, Ă˘â‚¬Ĺ“It comes down to understanding elasticity at a household level.Ă˘â‚¬Âť
a. Is the use of loyalty cards that provide the same price discounts for every shopper who uses them a form of price discrimination? Briefly explain.
b. Why would making price discounts depend on a shopperĂ˘â‚¬â„˘s buying history involve Ă˘â‚¬Ĺ“elasticity at a household levelĂ˘â‚¬Âť? What information from a shopperĂ˘â‚¬â„˘s buying history would be relevant in predicting the shopperĂ˘â‚¬â„˘s response to a price discount?
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