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 would be the profit maximizing choice. The scenario includes making up reservation prices (i.e. maximum willingness to pay), charging a profit-maximizing price based on those values, and demonstrating that profit is higher under versioning than charging a single price. Men and women can have different reservation prices, but the reservation prices you choose must be the same in both tables!

To determine unit costs and total costs, use the costs given above. Remember that the price that is charged determines how many (if any) units are sold.

Single price using gender-neutral packaging

Gender identity

Market size

Reservation Price

Price Charged

Revenue

Cost

Profit

Men

10 people

20

Women

10 people

10

Total:

Price discrimination with versioning

Gender identity

Market size

Reservation Price

Price Charged

Revenue

Cost

Profit

Male

10 people

20

Female

10 people

10

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.