Price Discrimination Flashcards Preview

Economics REVISION 5 (micro) > Price Discrimination > Flashcards

Flashcards in Price Discrimination Deck (15)
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1
Q

What is price discrimination

A

A business charging different consumers different prices for the same product

2
Q

Necessary conditions for price discrimination

A
  • sufficient monopoly (market) power
  • identifying different market segments
  • ability to separate groups
  • absolute to prevent re-sale (arbitrage)
3
Q

Main aims of price discrimination

A

Extra revenue
Higher profit
Improved cash flow
Use up spare capacity

4
Q

What needs to be so that price discrimination can increase revenue and profits

A

Extra units of a good or service can be sold for a price above the marginal cost of supply

5
Q

What is 1st degree price discrimination

A

Charging different prices for each individual unit purchased - i.e. people pay their own individual willingness to pay

6
Q

What is 2nd degree price discrimination

A

Prices varying by quantity sold / time of purchase e.g. Peak time prices

7
Q

What is 3rd degree price discrimination

A

Charging different prices to groups of consumers segmented by PED, income, age, sex

8
Q

How has price discrimination been made easier recently

A

E-commerce

9
Q

What is the huddle model of price discrimination

A

It separates buyers with low willingness to pay from those happy to pay a premium price - often to be the first to use it.
To take advantage of a lower price the consumer must be able to overcome some kind of hurdle / inconvenience.

10
Q

Examples of the hurdle model of price discrimination

A

Cheaper prices for nearly new products

Discounts for those prepared to collect coupons

11
Q

What does 3rd degree price discrimination involve

A

Segmenting consumers to groups. Price sensitive consumers with lower willingness to pay are charged less

12
Q

Off peak times

A

Market demand is low and firms will have spare capacity

13
Q

Peak times

A

Marginal cost may also be higher as capacity limits are reached

14
Q

Arguments against price targeting

A

Exploitation of consumers
Consumer surplus = producer surplus
Discrimination as a barrier to entry
Reinforces monopoly power

15
Q

Arguments in support of price targeting

A

Potential for cross subsidy of activities that bring social benefits
Used spare capacity
New consumers into the market
Use of monopoly profit for research