Class, Home Depot, a home and garden supply store, offers a 10% discount to active and retired military personnel, reservists, and to their families. Home Depot certainly has some market power, and can identify military personnel using their military identification cards. But doesn’t arbitrage seem possible? Some possible reasons why this program doesn’t get abused:

  • A 10% discount is relatively small.
  • Many military personnel would consider it “dishonorable” to abuse the discount privilege.
  • Transaction costs (the inconvenience of having someone else buy goods for you) are high.

Can you think of other examples of price discrimination?