Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are sold Disciminatory different prices by the same provider in different markets. For price discrimination to succeed, a firm must have market power, such as a dominant market share, product uniqueness, sole pricing power, etc. However, some prices under price discrimination may be lower than the price charged by a single-price monopolist.
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The term differential pricing is also used to describe the practice of charging different prices to different buyers for the same quality and quantity of a product, [6] but it can also refer to a combination of price differentiation and product differentiation. In a theoretical market with perfect informationperfect substitutesand no transaction costs or prohibition on secondary exchange or re-selling to prevent arbitrageprice discrimination can only be a feature of monopolistic and oligopolistic markets[16] where market power can be exercised. Otherwise, the moment the seller Desdribe to sell the same good at different prices, the seller at the lower price can arbitrage by selling to the consumer buying at the higher price but with a tiny discount.
However, product heterogeneity, market frictions or high fixed Diecriminatory which make marginal-cost pricing unsustainable in Unit 2 P2 Describe Discriminatory Practice in long run can allow for some degree of differential pricing to different consumers, even in fully competitive retail or industrial markets. The effects of price discrimination on social efficiency are unclear.
Output can be expanded when price discrimination is very efficient. Even if output remains constant, price discrimination can reduce efficiency by misallocating output among consumers [ citation needed ].
Price discrimination requires market segmentation and some means to discourage discount customers from becoming resellers and, by extension, competitors. This usually click using one or more means of preventing any resale: keeping the different price groups separate, making price comparisons difficult, or restricting pricing information. The boundary set up by Discirminatory marketer to keep segments separate is referred to as a rate fence.
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Price discrimination is thus very common in services where resale is not possible; an example is student discounts at museums: In theory, students, for their condition as students, may get lower prices than the rest of the population for a certain product or service, and later will not become resellers, since what they received, may only be used or consumed by them. Another example of price discrimination is intellectual propertyenforced by law and by technology. In the market for DVDs, source require DVD players to be designed and produced with hardware or software that prevents inexpensive copying or playing of content purchased legally elsewhere in the world at a lower price. In the US the Digital Millennium Copyright Act has provisions to outlaw circumventing of such devices to protect the enhanced monopoly profits that copyright holders can obtain Unit 2 P2 Describe Discriminatory Practice in price discrimination against higher https://amazonia.fiocruz.br/scdp/blog/work-experience-programme/book-review-the-scrivener-and-kate-chopin.php market segments.
Price discrimination can also be seen where the requirement that goods be identical is relaxed. For example, so-called "premium products" including relatively simple products, such as cappuccino compared to regular coffee with cream [ dubious — discuss ] have a price differential that is not explained by the cost of production.
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Some economists have argued that this is a form of price discrimination exercised by providing a means for consumers to reveal their willingness to pay [ citation needed ]. Exercising first degree or perfect or primary Discri,inatory discrimination requires the monopoly seller of a good or service to know the absolute maximum price or reservation price that every consumer is willing to pay. By knowing the reservation price, the seller is able to sell the good or service to each consumer at the maximum price they are willing to pay, and thus transform the consumer surplus into revenues, leading it to be the most profitable form of price discrimination.]
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