Price Price DiscriminationDiscrimination

Price Price DiscriminationDiscrimination

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.

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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

• 1st degree – consumer surplus – get as much from each customer as you can.

• 2nd degree – bulk buying – discounts• 3rd 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 (p278)• 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