Reference no: EM132098612

Problem:

While price discrimination can seem unfair, it can be a good thing in some cases. There are many cases of price discrimination, but I will stick to price discrimination with age. The first thing that comes to mind when I think of price discrimination with age is car insurance. Car insurance providers are allowed to charge younger drivers more than they would more experienced drivers, and can also charge the elderly more. This may seem unfair at first, but the reasoning behind the difference in price makes sense. Young drivers are simply less experienced with driving, and are more likely to be involved in an accident. Car insurance providers profit from people paying for insurance but never being involved in a car accident, and that is the same for all insurance providers. Since young drivers are more of a risk while driving, they are charged more. When I was younger, I never liked the fact that I was being charged more than older drivers just because I was young. As I got older and thought about the price discrimination from an economic point of view, I realized that decision was based on evidence that young drivers are more of a risk than older drivers, and charging young drivers more made sense for a car insurance provider.

What would be the best possible reason for this? Why would a company price discriminate?