Economics Perfect Competition Questions
Price discrimination occurs when a seller charges different prices for the same product or service to different customers. The conditions necessary for price discrimination to occur are:
1. Market power: The seller must have some degree of market power, meaning they have the ability to influence the price of the product or service. This could be due to factors such as being a dominant firm in the market or having a unique product.
2. Identifiable customer segments: The seller must be able to identify different customer segments with different willingness to pay for the product or service. This could be based on factors such as age, income, location, or purchasing behavior.
3. Price discrimination must be feasible: The seller must have the ability to separate customers into different groups and prevent arbitrage, which is when customers buy the product at a lower price and resell it at a higher price. This could involve implementing different pricing strategies, such as offering discounts to certain customer segments or using personalized pricing based on individual customer data.
4. No resale opportunities: Price discrimination is more likely to occur when there are limited opportunities for customers to resell the product or service. If customers can easily resell the product at a higher price, the seller may not be able to effectively implement price discrimination.
Overall, price discrimination occurs when a seller has market power, can identify different customer segments, can implement different pricing strategies, and there are limited resale opportunities.