dolution

Many supermarkets provide regular shoppers with “loyalty cards” 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 shoppers’ 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, “It comes down to understanding elasticity at a household level.”

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 shopper’s buying history involve “elasticity at a household level”? What information from a shopper’s buying history would be relevant in predicting the shopper’s response to a price discount?