The Economics of Student Discounts

In my last blog post I talked about all of the ways you can use your student status to save some money here and there, but why is this? The theory behind student discounts (or any kind of of discounts for that matter) is a pretty simple one as far as economic theory goes. The theory is called (Third Degree) Price Discrimination.

Third Degree Price Discrimination is the theory that allows companies to charge different prices to different groups of people, e.g. students! Companies use the common knowledge that students are pretty tight in the money department, and therefore offer them exclusive discounts to invite them to spend what little disposable income they have.

AN EXAMPLE

Lets take Topshop for example; Topshop have a b-e-a-utiful coat, but unfortunately at the price of £50, I just can’t afford it. However, if they were to offer a 20% student discount, that beautiful coat that I just can’t live without would come in at £40, rather than the original £50. That discount both saves me money, and makes me feel like I’m getting a good deal (the same mental pricing that makes companies charge 99p, rather than £1) therefore, I’m more likely to splash the cash. This pricing technique also benefits Topshop because they are getting increased demand, which makes up for the reduced income per coat (basically, a discounted coat and lots of sales is better than an expensive coat and no sales, as long as the price still exceeds the cost). Therefore, in this example, both customers and retailers are benefiting.

So, that’s why companies are willing to give you a little extra discount on your purchases, without sacrificing profit.

For more information about student discounts, check out this post.

For more information about price discrimination, check out this post.