Question

Economics - Direct Price Discrimination, Indirect Price Discrimination

A manufacturer of microwaves has discovered that male shoppers have little value for microwaves and attribute almost no extra value to an auto-defrost feature. Female shoppers generally value microwaves more than men and attribute greater value to the auto-defrost feature. There is little additional cost to incorporating an auto defrost feature. Since men and women cannot be charged different prices for the same product, the manufacturer is considering introducing two different models. The manufacturer has determined that men value a simple microwave at $75 and one with auto-defrost at $90 while women value a simple microwave at $90 and one with auto defrost at $135.

A. If there is an equal number of men and women, what pricing strategy will yield the greatest revenue?

B. What if most of microwaves' shoppers are women?

Answer 1

(A)

So if we have an equal number of two different segments of the customer having two different preference for the two-segment of a product then, in that case, it becomes necessary for us to look on their utility very carefully as because they together will decide the total revenue generated by the firm which depends on the product demand by the two different customer segments thus as per the question a male customer has low preferences towards the high-end product segment and they mainly prefer low range product segment, whereas female consumer has a strong preference towards high ends product segment, and thus they mainly prefer high-end product segment rather then low range product segment, that's why even they prefer to pay more for high-end microwave product and valued it at $135 whereas for a simple microwave they are ready to pay 90$. but in the case of a male consumer, they prefer simple microwave as compared to other high-end auto defrost microwave and valued a simple microwave at $75 and auto defrost microwave at $90, but as we have an equal number of both the consumer thus it becomes necessary for us to decide our price in such a manner that we can generate the maximum revenue in the market and by looking at the consumer behavior we can say it will be better to sell a simple microwave at $75 so that most of the male demand can be captured as they preferred to buy a simple version of microwave and even if we will look on the price expectation of the female consumer $75 is much lower then their expected price thus even those portion of female customer who is thinking to buy a simple microwave can go for it whereas in case of an  auto-defrost microwave we can sell it for $120 as most of the female consumer has a strong preference toward it they will prefer to buy it and even it is below their price expectation, thus we can say most of the female customer will think about buying an auto defrost microwave, thus the price range for two segments of the microwave should be $75 for a simple microwave and $120 for an auto defrost microwave

(B)

As if most of the consumer in the market are women then, in that case, it will be better if we can decrease the price of a simple microwave to $80 as anyway most of the consumer are women and they prefer to buy an auto defrost microwave rather then a simple microwave thus we can easily sell our high-end microwave even at a high price because of its high demand in the market and by lowering the price of the simple microwave we can actually increase its sale as male consumers prefer to buy simple microwave thus it's better to sell the simple microwave at $80 and auto defrost microwave at $135 to get high revenue generation from market.