Question

Tinder is an online location based dating app that allows mutually attracted users to easily interact with each other and set up future contacts using a function called a “swipe”. Tinder recently introduced “Tinder Plus” which allows subscribers extra functionality within their accounts. One of the sought after functions is the ability of paid subscribers to “rewind” a limited number of swipes.

This new pricing strategy has generated a significant amount of controversy because of its two-tiered approach. Users under 30 will pay $9.99 a month, while users over 30 will pay double that amount, or $19.99.

1. What economic principle(s) is Tinder’s marketing department counting on to make this decision pay off?

2. How is this economic principle connected to total revenue?

Answer 1

Answer 1) the economic principle is 3rd degree price discrimination strategy,

Market is segmented into two or more parts, & different profit maximizing prices are charged.

The two markets are divided in such a way that arbitrage is not possible .

Answer 2) the 3rd price discrimination strategy yields higher total revenue than the common single price strategy.

The more elastic market ends up in paying lower prices, & more elastic segment pays higher price.