Price Discrimination - Ch4
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- 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.
- Goods sold at different prices in different countries or regions in a country.
- Time
- i.e. peak times for trains = higher prices.
- Age
- Adult, pensioner, child. - i.e. trains, theatre tickets.
- Geographical
- 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.
- Conditions necessary:
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