Economics Price Discrimination Questions Medium
The key assumptions of perfect price discrimination are as follows:
1. Complete market power: The seller has complete control over the market and can set different prices for each individual consumer based on their willingness to pay.
2. Perfect information: The seller has perfect knowledge about each consumer's willingness to pay and can accurately determine their reservation price.
3. No resale or arbitrage: Consumers are unable to resell the product or take advantage of price differences between different markets.
4. No market segmentation: There are no differences in consumer preferences or characteristics that would allow the seller to segment the market and charge different prices based on these factors.
5. No transaction costs: There are no costs associated with negotiating or enforcing individualized prices for each consumer.
6. No price discrimination costs: The seller does not incur any additional costs in implementing and maintaining a price discrimination strategy.
7. No consumer surplus: Under perfect price discrimination, the seller captures all consumer surplus, as each consumer pays their maximum willingness to pay.
It is important to note that perfect price discrimination is a theoretical concept and rarely occurs in real-world markets. However, understanding its assumptions helps in analyzing and comparing different pricing strategies and their effects on market outcomes.