Amtrak: Price Discrimination in the Pioneer Valley

Amtrak: Price Discrimination in the Pioneer Valley

Edmee, Marilyn, Yuzhi, Jenni 

We all have benefitted from the Peter Pan buses services. What a great opportunity to go to NY or Boston for the week-end! Of course if the tickets are sold out, you can go to Springfield and catch a train. But most of us prefer to take the bus!

Imagine if one day Peter Pan exit the market. What would you do? What would your options be to go home or to visit a friend? You could take a taxi but to go to Boston it would cost you around $180/$200 and it is too expensive for college students like us.

Therefore, we would be left with only the train option. In this situation, Amtrak becomes a monopoly in the transportation services market. With this situation, students began to worry about what prices would be and how they would be fixed. So Amtrak decided to work with price discrimination to try to satisfy all types of consumers.

The company began with what is called: the first degree price discrimination. Prices were settled in order that each individual were charged their exact willingness to pay. For example, Lucie a Mount Holyoke student wanted to go to Boston for the week-end but wanted to spend only $5 on her train tickets, and this amount became what she paid.

Unfortunately we would all want to go everywhere for free, we would lie to Amtrak about our willingness to pay and there would be no way for Amtrak to verify our actual willingness to pay.  Therefore this first-degree price discrimination is impractical and Amtrak started to review their method to set prices.

Thus, Amtrak considered using the second degree price discrimination. Here, the company tries to charge different prices for different quantities of goods. For instance during holidays, the company quantity discounts for bulk purchases, cheap early bird tickets and even high prices for last minute purchases (consumers will definitely buy the tickets as they have no choice). Since the Pioneer Valley has a large population of students, using this price strategy will be beneficial for Amtrak especially in seasons where students want to buy group tickets to see a concert in Boston or just to visit a museum as a class. As people have no choice, using discounts for quantity purchases may even help Amtrak increase the number of hours of their services as they can cater for more customers while increasing their profits.  

As monopolist make various decisions to increase profits, they also think about how they can satisfy other groups while maximizing profits. Another interesting decision that Amtrak can take is to use the third degree price discrimination. Noticing the different groups of people living in the community (students, senior citizens, workers, etc.), they divide the market into segments and created slightly different prices for each group. This will help them to maximize their profits in the future as they continue to remain a monopoly because they continue to satisfy the needs of each and every individual. Students and senior citizens may pay fewer prices compared to professors and workers alike. These market segmentations are linked to consumers’ willingness and ability to pay and thus more customers are attracted to Amtrak as they gain the trust of the producer.

This is how Amtrak will be able to stay as the only monopoly in the pioneer valley as they are able to use price discrimination strategies to satisfy different consumers in the market while maximizing profits for themselves.