Distinguish between price discrimination and non-price discrimination. Under which market structure is each of them more...

Distinguish between price discrimination and non-price discrimination. Under which market structure is each of them more likely use? Why?

Expert Solution

Price discrimination is a strategy of a seller to charge different prices to different customers for the same product based on what the seller thinks he can expect the buyer to pay for the product.

It is of 3 types

1. First degree price discrimination- Price charged is maximum of what the buyer can pay for the product.

2. Second degree price discrimination - discounts on products brought in bulk.

3. Third degree price discrimination- different prices charged to different consumer groups.

The discrimination of different products is based on the prices charged for it for different buyers.it is pure pricing strategy of the buyer and includes exact same good .

Non price discrimination also has the same goals as price discrimination that is to maximize the gains of the seller but relies on other attributes of the product rather than price of the product such as reducing the quality of input used in the production which reduces the overall cost of the product and keeping the price same leads to higher profit.Thus the main tool used in non price discrimination is to keep the price of the product same and changing other things such as input cost , advertisement cost etc leading to higher profits than competitors.

Price discrimination is mainly used in a monopoly market structure as the seller is the sole producer of the product and can change the price of the product according to his own wish (keeping in mind the demand of the product) and also the monopolist knows the buying power of each consumer which is why he can employ different prices to different customers for the same product.

Non price discrimination is mainly used in oligopolistic and Monopolistic markets as firms are extremely competitive in these markets which is instead of competing on the price level firms try to compete on characteristics other than price which saves them from price wars and lower profits.Non price discrimination includes different advertisment and promotional costs etc.

Rahul Sunny answered 7 months ago

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