Concept Of Price Discrimination

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What would happen if in certain regions, only one seller of a particular product existed? In such cases, can you state what would be the possible scenarios in terms of ‘willingness of purchase’? Anderson and Dana (2009) have stated that in such similar situations, various ways exist through which firms price their products and services. Some examples in day to day situations include product line pricing (e.g. BMW series), advance purchase discounts, coupons and intertemporal pricing etc. Thus, every consumer is getting a similar product or service at a different price. Why does such discrimination exist? Who benefits from such discrimination? These examples are based on the concept of price discrimination which is very common in our everyday…show more content…
The essay begins with an introduction to economics and then explains the concept of price differentiation and the different market structures. Then, the case of monopoly is explained followed by essential conditions for successful operation of this concept. At last, various examples have been given to show how arbitrage is stopped or control in order to maintain the market segments followed by overall advantages and disadvantages of this concept. Before the discussion on price distribution it is important to have a look at basic concepts of economics. The law of supply and demand establishes the relationship between price, supply and demand curve. According to the law, price and quantity demanded (Qd) are inversely related while price and quantity supplied(Qs) is directly proportional. The concept of marginal revenue and cost is also important to understand the concept of price discrimination. Marginal cost has been defined as “the rate of increase of expense with respect to production” (Muir,1958, p. 98). Similarly, marginal revenue is the rate of increase of revenue with respect to…show more content…
In such a case a seller charges more per unit price for low units and low per-unit price for higher amount of purchase. Examples include different pricing for different size of packaged cereal. He further argues that a monopolistic firm would be involved in third degree price discrimination if the consumer data is used to segment the consumer groups and each group is being offered different prices. Third degree involves charging a different price for every consumer group. In such a case firms are able to segments its potential customer into different groups. Some groups may be more price sensitive i.e. price elastic while some may be less price sensitive i.e. price inelastic. The firm thus charges higher amount (P1) in price insensitive market while charges lower amount (P2) in price sensitive market instead of charging a fixed price P* (such that P2<P1). Agarwal (2009) justifies the concept of price discrimination by stating certain services like rail transportation and medical services cannot run profitably without price

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