7 Explain why all firms do not price discriminate Be sure an

7. Explain why all firms do not price discriminate. (Be sure and include the requirements to price discriminate.) (9 points)

Solution

All firms don\'t price discriminate. The reason is it does not make economic sense for them. Price discrimination is profitable only when marginal revenue is different in two markets. Margins revenue will be different if elasticities of demand are different in two markets. The firms will sell greater quantity in market where elasticity of demand is greater. Further it should not be possible for the goods or consumer to transfer from one market to another. These conditions are not satisfied by most markets and thus firms can\'t price discriminate.