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18 January, 11:01

Hertz car rental charges a business man who makes a last minute reservation $70 per day to rent a Ford Focus. On that same day, Hertz charges a vacationing family who made their reservation four weeks in advance, $40 per day for the same type of car. Is this price discrimination? Charging different prices to rent a Ford Focus to two different types of customers is A. not price discrimination because business travelers deserve to pay more. B. price discrimination because Hertz is taking advantage of the different demand curves of business travelers and leisure travelers. C. not price discrimination because vacation travelers deserve a price break. D. price discrimination the vacation traveler can resell the car to the business traveler. E. not price discrimination because it is more fair if everybody pays what they can afford.

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  1. 18 January, 11:21
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    B. Price discrimination because Hertz is taking advantage of the different demand curves of business travelers and leisure travelers

    Explanation:

    The firm is taking advantage of the information they have of the willingness to pay and of the consumer demand curve, so he differentiates the price for different consumers. However, something must be clarified, the firm is not differentiating the price because the consumer is an business man or because it is a family on vacation, the price is being differentiated due to the anticipation with which the reservation is made due to the difference in demand curves.

    For a family, the demand to rent a car is different since it is an expense that is planned so they can make the reservation in advance, while the businessman due to the nature of his work has a different demand curve since he may need to make a sudden business trip and not have that anticipated expense, so you he has to make a last minute reservation and that is why he is charged with a differentiated fee.
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