Question

Direct price discrimination is a pricing strategy where different price is charged for different customers over the same goods and or service. This can be done for example when a Barber charges higher to higher income people and lower to lower-income people.

Indirect price discrimination is when consumers are given price options allowing them to choose what suits them the best. A perfect example is when customers but different types of burgers at McDonald’s depending on their income. Direct price discrimination would be better over indirect if the producer or business is able to distinguish and separate customers in terms of nationality, employment, location age, etc. It can also work better when there is no way to perform any form of arbitration and when the consumer cannot easily hide their categorical classification factor like location, age etc. To enable the producer to practice price discrimination, elasticity of demand should be different for different categories of customers. A sensible example would be a higher costing coffee for a group of professionals like doctors and nurses could be less elastic than a cup of coffee for college students at a school café. This is the same product but different levels of elasticity basing on the income levels.

Please respond in 100-150 words

Answer 1

I completely agree with the statement given above about the price discrimination.

Price discrimination is charging different price for the same goods to different people and it is possible if the seller know the preference of the consumer and the elasticity of the demand. One big example which is not mentioned here and I believe should be there is Airline tickets. if Airline tickets are booked several days in advance the price of the same flight will be less, the airline company knows that the consumer have an elastic demand because they can choose form various options, but the same flight ticket will cost much more when booking a day or two before the journey. That is considered as inelastic demand and at that time the substitutes are less.

Another thing which is important for price discrimination is no resale of the goods. Like a movie experience, the consumer cannot resale it. if the goods can be sold again, price discrimination becomes difficult and the first person who brought it will resell after using and that will increase the number of sellers decreasing the price.