Question

In which cases would an organization benefit from using direct and indirect price discrimination? Does market structure influence the capacity of the firm to use price discrimination?

Answer 1

Price Discrimination

Price discrimination occurs when identical goods and services are sold out at different prices by the same seller. Direct and Indirect price discriminations are comes under its types.

Direct Price Discrimination

Direct price discrimination is also called 3rd degree price discrimination. Third degree means charging different prices depending on particular market segments. It occurs when a firm split up the consumers into different groups or identifiable groups. Therefore it biased upon identity of the buyer. Eg:pharmaceutical companies price discriminateby charging different prices in different countries.

Indirect Price Discrimination

Indirect price discrimination also called 2nd degree price discrimination. It occurs when a firm offers a list of various choices of goods and allows the consumer what to buy.

Eg:- coupons and quantity discounts. Firms often give coupons to selected consumers. Then coupons are often highly targeted to your spending habits. If your average weekly shopping bill is ₹1500,then the shop may send you a₹100 off voucher if you spend over ₹1800. This is an indirect way of segmenting the market. It is also a clever marketing technique to get people to come back.

From the above we can say that the pharmaceutical, oil organisation, rail discount etc can make benefits through direct price discrimination. On the other the air tickets selling organisation, electricity organisation etc also get benefits through indirect price discrimination

Exactly the market structure influence the capability of the firms to use the price discrimination. For example Monopoly can widely use price discrimination in different sub markets of a product.