Price Discrimination - Ch4

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  • Created by: sammilaw
  • Created on: 21-10-15 11:11
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  • Price Discrimination
    • Conditions necessary:
      • Different elasticities of demand - some buyers prepared to pay more than others.
      • Resale can be prevented from one buyer to another - i.e. buying at a cheaper price then selling it for more.
      • The vendor can control what is offered.
      • No other firms in the market can sell the product at a lower price.
    • Methods:
      • Geographical
        • Goods sold at different prices in different countries or regions in a country.
          • i.e. car prices are higher in the UK than in mainland Europe.
      • Time
        • i.e. peak times for trains = higher prices.
      • Age
        • Adult, pensioner, child. - i.e. trains, theatre tickets.
    • Advantages for price discriminator:
      • Increased profits redistribute income from consumer to producers.
      • Profitable and will provide more revenue to the firm.
      • Output will be larger with PD than under single price monopoly.
        • Increases in output when under single price monopoly = fall in MR.
    • Effects on consumers:
      • Loss of welfare - consumer' surplus totally disappears under first degree price discrimination
      • Inequitable - some consumers have to pay more than others.
      • If profits are reinvested, consumers may benefit (in the LR) from increased efficiency and lower prices.
      • Lower prices may mean that poorer consumers can afford the product.

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