The following questions all deal with public enforcement of the Clayton Act. Using the language and...

The following questions all deal with public enforcement of the Clayton

Act. Using the language and interpretation of each act is highly recommended, as well as

any necessary graphs.

1) Price discrimination is strictly forbidden by the Clayton Act, and is defined as when the

price to marginal cost ratio is different for two different buyers of the same good.

(i) Explain why this still allows a producer to charge a different price to two separate

buyers.

(ii) Provide a real world example where the producer charges two different prices but is

not price discriminating.

Expert Solution

There are several factors that can contribute to this scenario. Firstly let's talk about transportation. We all know there is a transport cost that is involved while shipping of a good. If a good is imported from one country to another, factor cost becomes market price and that is variable from place to place. That might lead to increase the increase in prices, even though the procuder do not want to discriminate the prices. Also for trading between two countries, it is always advised that the distance between two countries should remain relatively on the lower side to gain the maximum advantage of trade.

Secondly let's talk about custom duties and indirect tax. Now if you see the price of Iphones in USA to that of India, even though the land (rent) and labour (wages) in USA are much higher than that of India, Still Price of Iphones are cheaper in USA than else where. It is because many government implement rational policies and impose high tariff and custom duties for luxury goods and other imports. So even though Iphone CEO would like to sell in the same price in India, like that of USA, it is not possible. The prices in India is very high almost by 50%. So government, even if they set some barrier regarding price discrimination, they do not realise that it is their barrier that sometime causes the prices to discriminate.

Thirdly i would like to talk about Geography. If you see China for example, they have huge availability of Raw materials, Spatial connection, good network and also cheap labour. Hence electronics made there are cheaper than elsewhere. Because of higher cost in other areas, Producer may charge a higher price there, but it is certainly not discriminating for their own personal gain.

Fourthly, i would like to talk about Dumping policies and exchange rate policies. You were well aware that government of China gives subsidy these producers to dump their prices as low as possible in other areas (even below the marginal cost). Also they fairly manipulate their exchange rate to have more exports. All these leads to the buying of more and more chinese goods as they are more cheaper than their competitors.

Clayon act stops all the malpractices, that is true, but there are several factors that can lead to the discrimination of the prices among two different buyers.

Rahul Sunny answered 1 year ago

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