3.4.5d - Price discrimination

Question 1

Define price discrimination

Answer 1

where a firm charges different prices to different consumers for an identical good/service with no differences in the costs of production
- attempts to turn CS into additional revenue

Question 2

What are the conditions needed for price discrimination

Answer 2

• price-making ability (e.g b to entry)
• information to seperate the market into group of consumerd with diff PED (more groups, more gains)
• prevent re-sale (market seepage)

Question 3

Examples of price discrimination

Answer 3

• theatres and cinemas offering concession prices for certain groups (student and OAP)
• window cleaners (low income vs high income neighbourhood)
• train tickets at rush hour
• pharmaceutical drugs sold at diff price in diff coutnries

Question 4

What is first degree p discrimin

Answer 4

each individual consumer is charged the max they are willing to pay
- but cost of gathering infor to do this and difficulty in preventing seepage makes this unrealistic

Question 5

What is second degree price discrimination

Answer 5

• used in wholesale markets where lower prices are charged at higher quantities, encouraging larger orders

Question 6

What is third degree price discrimination

Answer 6

• different prices charged for same product to different market segments ie. segments have different PEDs
• charge higher price to those with inelastic PED and the opposite way round for elastic demand
• price set at a level where MC=MR for both groups

Question 7

Benefits of price discrimination

Answer 7

• some or all consumer surplus converted to extra revenue for the seller so revenue increased at consumer expense but this can be reinvested to improve product, more efficient production method to lower prices etc

Question 8

another pro

Answer 8

consumers are not treated equally but those on higher incomes end up paying more so they can afford this , which is more fair especially if greater profits made from some customers is sued to subsidise lower prices for poorer customers

Question 9

econplus dal pros

Answer 9

• dynamic efficiency - SNP reinvested
• EOS -
• some consumers benefit
• cross subsidisation

Question 10

econplusdal cons

Answer 10

• allocative inefficiency; exploiting consumrs with price - outweighs a lot of the pros
• inequalities
• anti-competitive pricing; third degree - drive down competition

Question 11

2nd degree example

Answer 11

• anywhere with fixed capacity; airline, trains, hotels, cinema, theatre
• lower prices last minute to fill capacity and meet fixed costs
• assume MC is same bc cost of each added seat is the same
• check out econ plus dal