Question

Why does price discrimination improve the efficiency of the market?

Answer 1

Price discrimination refers to the process of changing different prices to different customers for a same product or service. It is a selling strategy which helps to improve the efficiency of the whole market. The firm can use the strategy to sell the product by conducting a detailed study about the behavior, nature, demographic characteristics etc of a customer. Thus it helps the firm to increase it sales as well as profitab9ility. Under price discrimination some customer pay less and others pay more. The individual to which the seller offers product at a lower price will purchase more. The demand will be high and the seller is able to reap higher profits out of it. Whereas the individual to which the firm offers good at higher price also demand the commodity by trusting on its quality. Thus it is an effective tool for motivating and encouraging the customers to purchase a commodity.

The firm can attract more customers to the market, improve market efficiency, improve brand image, increase the reputation of the firm etc through the tool price discrimination. The demand for the goods in the market will be very high due to price discrimination. Thus in a market where price discrimination prevails there will be proportionate demand and supply. The problems of excess supply and demand n can be reduced to a large extent in such market. The market can be said to be consumer friendly. Thereby it can be said that price discrimination improve the efficiency of the market.