Question

SUBJECT: GAME THEORY
QUESTION: Price discrimination is designed to;

A) Extract surplus from consumers who are most willing to pay for the good

B) Raise profits by charging all consumers more than they would without price discrimination.

C) Raise profits by allowing some consumer to pay less and therefore become more loyal.

D) None of the above.

Answer 1

A) Extract surplus from consumers who are most willing to pay for the good (as in first degree of price discrimination whole consumer surplus is extracted by the producer as they charge each consumer their maximum willingness to pay, in the case of second degree price discrimination bulk discount strategy is observed in order to charge different price for different units of goods sold and also in the case of third degree price discrimination different prices are charged to different set of people's, means people with high elastic demand will be charged to less price) so we can see that in the given cases with price discrimination profit is raised by the firm by covering more consumers maintaining their market power