Question

In: Economics

Please Tye Answer What are the key conditions that must be present for a firm to...

Please Tye Answer

What are the key conditions that must be present for a firm to successfully price discriminate? What are two different examples of price discrimination being practiced today?

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Expert Solution

1. Nature of Commodity: price discrimination is possible when the nature of the commodity or service is such that there is no possibility of transference from one market to the other.(from cheap market to even dearer)

2. Distance of Two Markets: Price discrimination is possible when the two markets or markets are separated by large distance or tariff barriers

3. Ignorance of the Consumers when consumers are ignorant like they are not aware that in one part of the market prices are lower than in the other part.

4. Government Regulation:Price discrimination occurs when the government rules and regulations permit.

5. Geographical Discrimination:Price discrimination may be possible on account of geographical situations.

6. Difference in Elasticity of Demand:A commodity may have different elasticity of demand in different markets. Thus, the market of a commodity can be separated on the basis of its elasticity of demand.

Example of Price discrimination: In any amusement park there is a difference in prices of tickets for Adults and Children.

Prices of eatables are generally higher than MRP at the shops located at a difficult to reach places eg High Hills.


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