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Minnesota Government Mistreats Ladies

Mises Daily: Monday, July 26, 2010 by

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Recently the Minnesota Department of Human Rights — a funny title in itself — declared that the practice of "ladies' night" was illegal gender discrimination. Apparently, five establishments in the Twin Cities area were denying men "full and equal enjoyment" of their services because they charged women lower cover and drink prices.

Besides the unjust (and absurd) violation of private-property rights, the Minnesota government's harassment of businesses will end up hurting female and male customers. The practice of price discrimination — charging different customers different prices even for the "same" good or service — is economically beneficial.

Price Discrimination Is Common

Businesses discriminate against customers all the time, charging some of them higher prices than others. For example, food items will often have corresponding coupons, provided either by the grocery store itself or by the manufacturer. In addition, many grocery stores now have special membership clubs, where a shopper has to fill out a form to obtain a card or a tab to put on a key ring. Even though they are buying the same goods as other shoppers, those who have coupons or are members of the club will be charged lower prices on particular items.

An even more "discriminatory" practice occurs at the movie theater. There, people are charged different prices for "the same" ticket depending on their age, and whether or not the customer is a student. Specifically, senior citizens, young children, and students receive discount prices, while middle-aged persons with full-time jobs have to pay full freight.

So we see that price discrimination is ubiquitous. The only thing rare about the practice of ladies' night is that the discrimination is based on the sex of the customer, as opposed to the customer's age or the possession of a coupon.

Price Discrimination Is Efficient

In Austrian economics, any voluntary exchange between consenting parties is "efficient," in the sense that both parties expect to benefit from the trade. (That's why they agree to it!) However, even in the broader sense of mainstream economics, price discrimination can promote economic efficiency. In other words, even mainstream economists recognize the role that price discrimination can play in allowing producers and consumers to exploit potential gains from trade.

Think of it like this: Suppose the government cracks down on movie theaters that charge different prices based on age and educational status. This action would clearly make the owners of the movie theaters worse off. After all, they had the option of charging a uniform price beforehand, and yet they chose to make their prices vary according to the identity of the customer. Therefore, the movie-theater owners are obviously hurt by the crackdown on price discrimination.

In the new equilibrium, the theaters would charge a price somewhere in between the original range. For example, if the theaters originally charged $8 full price, $5 for senior citizens and students, and $4 for children, then perhaps in the new equilibrium the theaters would charge everyone $6.

In this case, not just the theater owners but also a large portion of their customers would obviously be hurt by the new regulation. Specifically, senior citizens, students, and families with at least two young children would all pay more to go to the movies than they did before. Unless they derived psychic pleasure from living in a "fairer" society, the government crackdown on movie-ticket price discrimination would hurt them.

Yet we can't even conclude that the other customers benefit. For one thing, people often prefer to watch movies with a bigger crowd, especially for comedies or blockbuster thrillers, because it makes the event more special. Under the new one-size-fits-all pricing, the crowds will probably be smaller on average, so more middle-aged theatergoers will find themselves the only demographic in the crowd.

"Even mainstream economists recognize the role that price discrimination can play in allowing producers and consumers to exploit potential gains from trade."

Beyond that, the theater owners will find ways to cut back on their expenses in order to compensate for their reduced revenues. We know their revenues will have dropped, because the theater business is one of high fixed costs and low marginal costs. In other words, once they had already got the theater up and running, and purchased the rights to show major motion pictures, the theater owners then decided to tinker with their prices in order to bring in as much revenue as possible. Whether they sell 10 tickets or 100 tickets to a particular show, the expenses of having someone work the ticket counter, sell concessions, and clean up the theater afterward are practically the same. But this means that when the government forces the theater to change its pricing policy, the theater necessarily suffers a loss in revenues.

At the lower revenues, and with fewer customers overall (since senior citizens and students have a lot more free time than the people who pay full fare), the theater may decide to shut down its second concession stand. This means the line for popcorn may be longer than it was under price discrimination. With fewer students and kids going to shows, the theater might also shut down the video arcade, since it doesn't bring in enough quarters to justify its continued maintenance.

In extreme cases, some theaters — which had originally relied on a large volume of senior citizens, students, and young children — may shut down altogether. We can imagine a situation where a small town originally supported two theaters: one a brand-new multiplex with stadium seating and an excellent sound system, the other a run-down, old-school auditorium. But because of the location of the older theater, close to the local high school, it captured a large fraction of the students on any given night who went out to the movies.

Yet in the new equilibrium, when both theaters are forced by the government to charge higher prices for students than they did originally, perhaps the number of students who go to the movies on any given night might go down by 20 percent. Yet because of their unequal reliance on student customers, the multiplex might see its total ticket sales to students drop by only 5 percent, while the older theater sees its sales to students drop a devastating 50 percent. This is because those students who were very cost conscious were the ones going to the older theater in the first place.

Depending on the numbers, it's possible that because of the government's crackdown on price discrimination, the older theater has to shut down altogether. In this case, even the middle-aged theatergoers would be hurt by the crackdown. It's little comfort to be charged a "fair" price when the business stops offering the service altogether.

The Minnesota Government Doesn't Know How to Treat a Lady

A similar analysis applies to the Minnesota government's crackdown on "ladies' night." In the first place, the move obviously hurts bar owners and female patrons. Less obvious, the policy can make the male customers worse off, because the bars might respond by hiring fewer wait staff, spending less on bringing in quality musicians, cutting costs by carrying a smaller selection of beers, and so forth. In other words, even though the narrow price of "entry into the bar" and "price of a beer" might go down for the male customers, the quality of those goods might be so reduced that the men prefer the original situation with "unfair" pricing.

Beyond these subtleties, there are two obvious reasons that men benefit from the existence of ladies' night: First, if the government forces bars to charge women full price for drinks, it will often be men paying for them. Second, the whole point of ladies' night is to fill a bar with women, so that men want to go to the bar (and buy drinks at full price). That's the reason it's profitable for a bar owner to have ladies' night.

Mises Academy: Robert Murphy teaches Principles of Economics

So while it's true that a few men may applaud the Minnesota government's actions (as a few comments on the internet discussion boards suggest), in general most men will be hurt — especially when they realize that fewer women will go out to the bar if the practice of ladies' night is rendered illegal.

Conclusion

Following Bastiat, Henry Hazlitt said the mark of a good economist was that he could trace out the seen and the unseen effects of a government policy. As their crackdown on ladies' night demonstrates, the bureaucrats in Minnesota's Department of Human Rights are not good economists.