3.4 - Price Discrimination Flashcards
What is price discrimination?
Offering certain consumers different prices for the same product
What are the main aims of price discrimination?
Increase TR - Convert CS to PS
Increase TP - Assuming MP is positive
Generate cash flow
Increase market share
Customer loyalty
Utilise spare capacity
What is 3rd degree price discrimination?
Charging consumer groups differently
In accordance with age, sex, income, PED
What are the required conditions to use 3rd degree discimination?
Sufficient monopoly power
Ability to separate groups
Identifying different market segments
Ability to prevent arbitrage
What is arbitrage?
Re-sale
Simultaneous purchase + sale of a good/service
What are the possible advantages of price discrimination?
Market access/consumer base
Dynamic Efficiency
Effective use of spare capacity
What are the potential disadvantages of price discrimination?
Higher prices - Lost CS + allocative eff.
Increased regional inequality
Consumer groups can become flawed
Eco. profit may induce anti-competitive strategies
What are the general evaluation points of price discrimination?
Extent of discrimination
Impacts depend on use of profits
Difficult to determine fair price
