By classifying members into different membership types and categories and then charging the prices depending on the same (third degree price discrimination), Exeter sports center has been able to develop a market for each group of users separately with its own demand and marginal curve. Generally, the sports centre has developed a pricing policy which charges higher prices to the membership type and category which does not use the facility frequently. This particularly applies to non-members and external members who have a more price inelastic demand and use the facility in few numbers.
The university charges relative price to the membership category with a more price elastic demand, and particularly the category which uses the facilities frequently and in large numbers, such as the Junior category and Exeter University staff. Third degree price discrimination has enabled Exeter University to maximize revenue and profit in each segment of users by equating Marginal revenue to Marginal cost. Third degree price discrimination has been applicable and efficiently effective to Exeter Sports Centre, since the centre has partial information regarding most of its users, huge control of the market and limited competition, thus making it possible to establish linear pricing in each segment of users.
The graph below shows how Exeter Sports centre uses third degree price discrimination to determine prices and revenue for each category of its users. We will group the four categories (Students and Junior Staff, Alumni and Corporate, External, Non-Member) into two segments and then plot the graph below:
The cost of maintaining and managing Exeter sports centre is constant in each category, and hence makes it easy for the owners of the sport centre to use figure P* for each segment or market and develop the pricing policy to use, which in this case is third degree price discrimination. From the graph, we can solve MR=C in each segment (Demand A and Demand B). Exeter sports centre’s pricing graph indicates same marginal revenue, but different P*. Price is higher in segment B (Demand B: External, Non-Member) with less price elastic demand and few users and lower in segment A (Demand A: Students and Junior Staff, Alumni and Corporate) with more price elastic demand and discounts. Having same marginal cost in all categories has made it efficient for the owners of sports centers to develop an efficient pricing policy, such as third degree price discrimination.
In conclusion, for any firm to maximize performance in profit- and revenue-making, a good pricing policy must be employed. Through establishing a flexible pricing strategy University of Exeter pricing policy derives a realistic profit estimate, as the consumer’s experience and preference is captured in the pricing. The price discrimination policy employed ensures that the different consumer demand patterns in tastes and preferences are fully met, and the users are able to choose an affordable package. Segmentation in pricing practiced by Exeter University sports centre is very efficient and consequently expands usage of the sporting facility. Third degree price discrimination has enabled the sports centre to offer a menu of options and offer discounts to its members, as well as maximize revenue from all those who conduct their training, exercise and other sporting activities in the centre.