Case Study

Read: Krishna, A. (2016, July 25). Pink Tax: Gender and Other Price Discrimination Factors. WDI No. W04C92. Ann Arbor, MI: WDI Publishing at the University of Michigan.

The case study ends with several questions for discussion that I will adapt here. The cost and market characteristics of Kelly's nail brightening cream can be summarized as follows:

• Product material (identical for all gender identities): $.84 per unit
• Gender-neutral packaging material: $.16 per unit (made in-house, no shipping cost)
• Female-centric packaging material: $.21 per unit
• Male-centric packaging material: $.24 per unit
• Shipping cost for female-centric packaging: $.13 per unit
• Shipping cost for male-centric packaging: $.11 per unit
• Market size 10 men and 10 women
• Each person will buy at most one package of nail cream

Questions

1. Assuming away legal and public relations issues, describe a scenario under which price discrimination between female and male identifying customers via versioning of nail cream would be the profit maximizing choice. Use the costs above!

First, the scenario includes making up reservation prices (i.e. maximum willingness to pay). These values are entirely up to your discretion: you are effectively describing the hypothetical characteristics of consumers in the market.

1. The reservation price for those who identify as male is ____________________
2. The reservation price for those who identify as female is___________________

Second, put these values in the "reservation price" columns in both tables.

Third, you must choose the profit-maximizing market price. In table one, you will charge both the same price. In table 2, you will use gendered packaging and charge different prices.

Last, fill out the rest of the tables. Remember that the price that is charged determines how many (if any) units are sold. If versioning isn't profitable in your example, start over with new reservation prices! (HINT: is versioning more likely to be profitable when consumers have similar or dissimilar reservation prices?).

(assignment continues on page 2)

Single price using gender-neutral packaging

Gender identity	Market size	Reservation Price	Market Price	Total Revenue	Total Cost	Total Profit
Male	10 people
Female	10 people
Total:

Price discrimination with versioning

Gender identity	Market size	Reservation Price	Market Price	Revenue	Total Cost	Total Profit
Male	10 people
Female	10 people
Total:

1. What were the economic assumptions that you made about the characteristics and behavior of market participants in the above tables?
2. Give an example of how violating one of those assumptions would render price discrimination unprofitable.
3. Are there any ethical or legal issues that Kelly should consider when deciding to price discriminate based on gender identity? Discuss.