Ch. 14 indirect price discriminatipn

Question 1

price discrimination - indirect

Answer 1

When a seller cannot directly identify who has a low or high value, the seller can still discriminate by designing products or services that appeal to different consumer groups.

Question 2

indirect price discrimination

Answer 2

a price discrimination scheme in which a seller cannot directly identify low- and high-value consumers or cannot prevent arbitrage between two groups. The seller can still practice indirect price discrimination by designing products or services that appeal to groups with different price elasticities of demand.

Question 3

example of coupons

Answer 3

The grocery store essentially asks low-value consumers to identify themselves by their coupon-clipping behavior.

Question 4

example of airlines

Answer 4

Airlines differentiate business customers from leisure customers by their willingness to plan ahead.

Question 5

Price discrimination

Answer 5

is not always profitable.

Question 6

indirect price discrimination is not only a pricing issue, but also

Answer 6

a product design issue.

Question 7

We avoid cannibalization by making

Answer 7

the lower-priced version as unattractive as possible to commercial users by disabling the features most important to them.

Question 8

individual demand curve

Answer 8

a curve that tells you how much an individual consumer will buy at a given price.

*single individual consumer

Question 9

With an aggregate demand curve…

Answer 9

each point represents a different consumer with a different value for a single unit of the good.

Question 10

individual demand curves slope…

Answer 10

downwards because the marginal value (value placed on extra units) declines with each purchase

Question 11

If a seller is setting a single price,

Answer 11

it doesn’t matter whether she faces an aggregate or an individual demand—the profit calculus is the same

Question 12

The trick to profitably selling more

Answer 12

is to find a way to sell additional units without dropping the prices of the earlier units.

for ex:

• volume discounts
• Use two-part pricing, which is both a fixed price and a per-unit price.
• Bundle the goods

Question 13

When bargaining with a customer…

Answer 13

do not bargain over unit price; instead, bargain over the bundled price.

Question 14

Which of the following can take advantage of the fact that a coffee shop’s customers value each successive cup of coffee less than the previous cups.

a. Offer unlimited coffee for a single price with free refills.	
b. Sell a "souvenir cup" with the price of refills equal to the shop's marginal cost.	
c. Have a "frequent customer" program with a 10% discount on your second purchase each day,	
d. 20% discount on your second purchase, and so on.	
e. All of the abov

Answer 14

e. all of the above

Question 15

bundling

Answer 15

the practice of offering multiple goods for sale as one combined product.

Question 16

bundling makes customers more ______

Answer 16

homogeneous (they’re willing to pay the same amount for the bundle)

Question 17

Pure bundling

Answer 17

describes a situation where the commodities in a bundle are not offered for sale separately.

Question 18

Mixed bundling

Answer 18

a pricing strategy where the bundled goods can also be purchased separately.

Question 19

Bundling two products is likely to increase profit when

a. one of the products is much more valuable than the other.	
b. customers who highly value one product also highly value the other product.	
c. customers who highly value one product have a relatively low value for the other product.	
d. customers all have similar values

Answer 19

c. customers who highly value one product have a relatively low value for the other product.

Question 20

Indirect price discrimination requires

a. knowing if a consumer has a high or low value for our product.	
b. identifying some potential product feature that is correlated with value.	
c. having different costs of serving different types of customers.	
d. customers having similar values for our product.

Answer 20

b. identifying some potential product feature that is correlated with value.

Question 21

Business travellers value first-class tickets at $2,000 and coach tickets at $1,000. If coach tickets are currently priced at $400, what should be the price of the first-class ticket?

a. $400	
b. $999	
c. $1,399	
d. $1,999

Answer 21

c. $1,399

Question 22

A razor blade manufacturer gives away razors for free but charges a very high price for the razor blades. What must be true for this metering strategy to be profitable?

a. Higher value consumers use more blades than lower value consumers.	
b. Consumers value the razors more than they value the blades.	
c. The marginal cost of blades is higher than the marginal cost of razors.	
d. Lower value consumers can't resell blades to higher value consumers.

Answer 22

a. Higher value consumers use more blades than lower value consumers.