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
• 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
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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