Chapter 13

Question 1

What is Price Discrimination

Answer 1

the practice of charging different prices to different buyers or groups of buyers based on differences in demand.

Question 2

What are the necessary conditions for Direct Price Discrimination

Answer 2

1. ID two separate groups of consumers
2. Charge separate prices, proportional to inverse elasticity; and
3. Prevent arbitrage

Question 3

Where is price discrimination most profitable?

Answer 3

For products with relatively low marginal costs or with less-elastic demand

• (e.g., software, music, or pharmaceutical drugs)
• the gap between price and marginal cost is largest.

For these products, price discrimination is most profitable because there are more consumers whose values are above the marginal cost of production but below the profit-maximizing price.

Question 4

Legal advice on how to comply w/ antitrust laws

Answer 4

Charge all customers the same price, unless the cost of serving them varies. But feel free to cut price to any customer to meet the lower price of a customer.

Question 5

Chapter 6 Refresher

Answer 5

Question 6

What is the Robinson-Patman Act

Answer 6

Question 7

Only Schmucks pay retail means what

Answer 7

If consumers know that others are seeing a better price, some will not purchase

Question 8

Why would you Price Discriminate

Answer 8