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 is the practice of charging distinct rates on the basis of their variations in supply to distinct customers or groups of consumers An organisation can profit from both direct and indirect price discrimination. Both are intended to drive up profit margins, but an organisation would have to choose one of the two depending on the scenario and the product / service being sold. Direct price discrimination is a tactic used by businesses to pay distinct rates for the same good or service relative to the type of the consumer. This is intended to boost profit margins For movie theaters, a great instance is Matinee. During the weekday (in summer) and some times during the weekend, cinemas will charge adults a reduced price (usually the price of a child's ticket) to encourage children to watch films during the daytime, so most of them are busier at night. They understand if the adult ticket is inexpensive, they're more prepared to get their kids in to watch the film or even just come in as a pair.

Market structures are described as the interconnections between the various components that bind buyers, vendors (agents) and together products. These aspects are: number of agents, buyers or sellers or both buying / selling agent power and capacity to impact prospective price collusion between agent levels of manufacturing types of product differentiation ease of market entry or exitPricing choices of a business are produced under the determining impact of other market agents. For example, if the market has powerful competitors producing powerful brand loyalty and the market is hard to enter, a competing company will not decide to compete by setting higher rates on the assumption that a good higher price (providing greater value to the client, for example, leather upper shoes and insoles) will create a competitive client base. Based on brand loyalty and "competitive" pricing, current powerful competitors will continue to pull clients.

A business's pricing decisions are determined by taking into account all the influences and strengths of the all the market structure elements and adjusting their internal product pricing decisions accordingly.