Question

Price discrimination has been practiced widely in many firms across all industries. Answer
the following:
a. Describe the type of price discrimination used by Mercedes Benz for its products/
services. In your answer, explain briefly what the product/service is.
b. Moreover, do you think the current pricing strategy works well or would you rather
suggest a change in the strategy? If so, which pricing strategy and why? If not, why is
it an ideal pricing? Show evidence, if possible, with sales, profit, or market share.

Answer 1

Price discrimination is a methodology that comprises of a business or merchant charging an alternate cost to different clients for a similar item or service. It is one of the focused practices utilized by bigger, built up organizations trying to benefit from contrasts in free market activity from buyers.

In financial aspects, for value segregation to exist, three conditions should prevail all together for the organization to have the capacity to benefit from value separation: the organization ought to have the commercial strength, the organization ought to have the capacity to separate among purchasers as indicated by their interest connected attributes in addition to it should be fit for confining the resale between clients with low and intense interest versatility.

A) Second-degree price discrimination with engine variants is used by Mercedes Benz for its products/services, there is price discrimination across engine variants, in the sense that markups increase with engine size within models.

B) I would you rather suggest a change in the strategy, counterfactual data shows that average markups would be higher if firms restricted each model to have only one engine variant. The benefits of price discrimination, therefore, do not offset the increased competition when there are many variants of each model.