Module 10

• A scheme in which we can identify members of the low-value group, charge them a lower price, and prevent them from re-selling their lower-priced goods to the higher-value group.

  Direct Price Discrimination
• It can be illegal for a business to price discriminate when selling goods (not services) to other businesses unless

  • Price discounts are cost-justified
  • Discounts are offered to meet competitors’ prices
• This allows sellers to increase profit above the profit available from setting a single, uniform price.

  Pricing Schemes
• Because it allows a firm to sell items to low-value customers who otherwise would not purchase because the price is too high

  Motivation for Price Discrimination
• the practice of charging different prices that are not cost-justified to different people

  Price Discrimination
• In price discrimination, the bigger the difference between group elasticities, the more profit there is in designing a price discrimination scheme.
• Direct Price Discrimination occurs when you can

  • ID members of the low-value group can be identified
  • Charge low-value customers a lower price
  • Prevent resale (arbitrage) to higher-value consumers.
• Consumers do not like knowing they are paying higher prices than others.


  True
• if you are price discriminating, it is important to keep the scheme secret if you can.
• When arbitrage cannot be prevented; OR when high and low-value groups cannot be identified, sellers can still use price discrimination by


  designing products or services that appeal to different consumer groups
• In some cases of indirect price discrimination, businesses can increase profit by “tying” the sales of one product to another
• Tying the sales of one product to another does not violate anti-trust laws.

  False
• Another method to discriminate between buyers, which features the price which represents the value the consumer places on each unit consumed also known as individual demand curve 


  Volume Discounts
• When pricing for an individual customer, do not bargain over unit price. Instead, you should

  • Offer volume discounts

  • Use two-part pricing; or

  • Offer a bundle containing some units.
• allow a seller to extract more consumer surplus if willingness to pay for the bundle is more homogeneous than willingness to pay for the separate items in the bundle

  Bundling different goods together
• When you cannot ID members of groups; or cannot prevent arbitrage. Instead, discriminate by offering two products, a higher-priced, higher-quality good and a lower-priced, lower-quality good

  Indirect Price Discrimination
• Tickets to movie theaters (senior citizen discount, student discount, etc.)

  Is it direct or indirect pricing schemes?

  Direct
• Grocery stores (discount coupons, in-store or in weekly newspaper inserts)

  Is it direct or indirect pricing schemes?


  Indirect