Question

Describe how a company can avoid arbitrage if it wants to pursue price discrimination of the following products:

a. Beer for export; b. Vacuum cleaners – products at a discount are supposed to be offered to some buyers; c. Bus drives; d. Plastic that is an intermediate product with several applications.

Answer 1

The company can avoid the arbitrage if it wants to pursue price discrimination by consider three things that what price disccrimination it want to keep for diffrent product whether it be

• First degree price discrimination ( for each unit cosnumed ) -----------Maximum charge
• 2nd degree price discrimination ( for different unit consumed )   and
• third degree price discrimination ( for groups/communities ) ---------------variable charge

Now let us see for different product

(a) . In case of Beer export company can avoid the arbitrage by putting the price on different countires based on their Supply and deamand like say the consumption of beer every day or month in that particular country .Like wise there could be price discrimation based on coutries with tourist spots .Here first degree of price discrimination is achieved

(b) . Vcuum cleaner is a domestic product of immense use for cleaning . The Arbitrage in this can be avoided by keeping discount to the frequent or regular buyer of the company so that price discrimination can be pursure . Here the company can achieved 2nd degree of price discrimination

(c) Bus drive is a easiest for avoiding the arbitrgae .For children , females and old citizen discounts can be provided based on groups . Here we can get 3rd degree of price discrimination . for same bus ride , children will pay less and adult will pay more , or femlae will pay less /free and men will pay more or older will pay less and younger will pay more

(d) Plastic product can be set on different prices based on the availability in the areas where different industries require it , transportation , saftey is an isuue here the rbitrage can be avoided based on reasonable chekcs .