The Semantics of Group Based Discrimination

As one visits Red Fort or Elephanta Caves, there is an interesting anomaly while buying the entrance ticket. Indians and foreign nationals are charged differently for what essentially is the same offer.  In railways or in bus services, senior citizens are offered concessions while buying tickets. They normally pay around half the price than the normal customer. Students too have concessions while purchasing a season ticket or as it is popularly known as monthly pass. In Karnataka there is demand for concessions in monthly passes or daily tickets on city bus routes for women engaged in garment factories. Recently as a poll gimmick, Delhi government made travel free for women in Delhi transport buses. Students belonging to Scheduled Castes/ Scheduled Tribes/ Backward Classes etc. often get free studentship to cover their cost of studies. Last year, the central government introduced reservations in government jobs for candidates belonging to Economically Weaker sections. For many years, people living below the poverty line are offered food products at concessional prices under the Public Distribution system. Banks are being encouraged to lend at lower rates for certain weaker sections based on their criteria of income and social standing.

A glance at the above instances quoted from across the society seemingly will puzzle the reader. What is apparently common among these? There cannot be a more bizarre connection between charging different prices based on nationality in a heritage site to something being purchased in a public distribution system. Yet as one goes deeper there are hidden similarities.

Senior citizen concessions in transport services as with the case of student concessions have to do with the purchasing power. Senior citizens do not earn any independent source of income and thus most will price sensitive to goods and services. Their behaviour can be deemed as price elastic with respect to change in price and corresponding impact on quantity demanded. Similarly students are dependent on parents for their daily needs and thus will be price sensitive. Therefore pricing will happen to accommodate their respective price elasticity of demand. Thus an offer of lower prices.

The same principle applies to case of reservations and studentships also. Socially and economically backward classes have lower incomes and thus are unlikely to afford the prices for higher education etc. Therefore, there has to be a mechanism for provision of education goods to these underprivileged groups. The said objective makes the government to offer studentships to children belonging to backward communities to facilitate completion of their education.

In the case of job reservations, it is non-monetary incentive. Given the historical asymmetries of educational access, there needs to be level playing field and thus some kind of compensation has to be facilitated. This emerges through relaxation of marks criteria or age limit. Thus these students who perchance could not get the same access and delivery in education goods could use the extended time to make up for any lost benefits. Differential pricing thus need not be monetary alone but evolve through non-monetary dimensions as well.

All these instances trace their foundations to a principle in economics widely termed as group or segment based discrimination. As firm seeks to maximise profits and handle competition, it is imperative to understand price elasticity of each probable consumer. While the ideal is to go for individual discrimination, it is not possible in every case. In most cases, while individual elasticity cannot be measured or observed, a group elasticity measure can be arrived at with reasonable approximation. Therefore senior citizen concessions etc. take root. Yet the important principle in group or segment based discrimination is absence of inter-segment arbitrage. If the decimation allows for chiselling and inter-segment arbitrage the entire dynamics of group based discrimination collapses.

For age based discrimination, it is obvious that arbitrage possibilities are almost zero. In case of student concessions, very negligible possibility exists which can be curbed with appropriate checks and balances.  Differential pricing for Indians and foreigners based on perceived differentials in price and income elasticity at heritage sites is also free of arbitrage. Women being allowed free travel in Delhi buses too falls in this category. Yet the same cannot be said for many other categories.

In the opening paragraph, a reference was made to demand for free or concessional bus passes for women garment workers. To fulfil the pass condition, the woman must be employed by a garment factory. Yet there is no fool proof machinery for verifying the same. There are virtually few records for employee rolls on garment factories. While this might be a potential separating equilibrium for employers to cross check with provident fund records, it might not necessarily provide the validation. There is also possibility of women shifting jobs and continuing to travel in the bus using concessions. It is also not possible for allowing textile and garment factories to be located in a dedicated cluster to make use of the facility.

Analogous is the scenario with Public Distribution System (PDS). While the intentions are good, the practice offers a latitude for too many distortions to emerge. It is likely to bring an income certificate that certifies below a certain poverty level. Given the vast population employed in the informal sector, little pay records, this becomes a relatively easier task, something that economic reservations too have to factor into. Secondly, the goods sold under the public distribution system can be resold in the market at higher prices. In fact, a critical part for realisation of group based discrimination is absence of good being resold or transferable. There is no possibility of resell or retransferred in context of criteria defined on age, caste, religion, nationality etc. Yet, the same will not be possible if the good can be transferred as the context for public distribution system. This in one reason why it failed. Secondly, like in case of subsidised LPG, the good must not be available in parallel markets. In case of food grains, it is easily available in parallel markets. Despite non-availability in parallel markets, the arbitrage though resale in LPG was prevalent.

As one reviews the background, economic theory posits differentials in elasticity among individuals or group of individuals which a firm or government strives to exploit through a positive or negative discrimination. The core of the discrimination is the ability to zero in on the elasticity of the group or individual and prevent resale or retransfer of the good and the prevention of the good being available through parallel means. Price discrimination of the third degree as it known in the economics textbooks is definitely an interesting way to leverage variances in elasticity yet fraught with risk of serious failure.