Price Discrimination Price Discrimination Takes place when a

Price Discrimination

Price Discrimination • Takes place when a producer sells the same product to two or more different markets at different prices. • And the price difference is not related to any difference in costs.

Example • Student have elastic demand for cinema tickets. • If the price goes up they won’t go. • Therefore they are charged a low price for tickets.

Continued • Adults have an inelastic demand for cinema tickets. • If the price goes up they will still go. • Therefore they are charged a higher price for tickets.

Categories of Price Discrimination • 1 st degree – consumer surplus – get as much from each customer as you can. • 2 nd degree – bulk buying – discounts • 3 rd degree • – elastic demand – low price (student) • - inelastic demand – high price (adult)

Conditions needed for price discrimination • Monopoly power • Separate markets • Different elasticities of demand high elasticity – low price low elasticity – high price • Consumer ignorance • Consumer inertia (indifference)

Dumping (p 278) • Is a form of price discrimination. • Selling surplus goods on the export market at a price below the cost of production.

ctd • A profit has been yielded form the home market. • Increasing sales here will only drive down prices. • Therefore selling abroad at a low price will increase revenue instead.

Exam Questions • • • 2010 2008 Q 2 (b) P 11 2004 Q 1 (c) P 39 2000 Q 2 (a) P 65 1998 Q 1 (c) P 79