1 Regarding price discrimination consider the following chap

1) Regarding price discrimination, consider the following chapter highlights, and describe, in general, the major problem with price discrimination in a business situation.

• If a seller can identify two groups of consumers with different demand elasticities, and it can prevent arbitrage between two groups, it can increase prot by charging a higher price to group with the less-elastic demand.

• Price discrimination is the practice of charging different people or groups of people different prices that are not cost-justied. Typically more people are served under price discrimination than under a uniform price.

• Arbitrage can defeat a price discrimination scheme if enough of those who purchase at low prices re-sell to high-value consumers. This can force a seller to go back to a uniform price.

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

• It can be illegal for business to price discriminate when selling goods (not services) to other businesses unless • price discounts are cost-justied, or • discounts are offered to meet competitors’ prices.

• Price discrimination schemes may annoy customers who know they’re paying more than others and can make them less willing to buy because they know someone else is getting a better price. If you can, keep them secret.

Solution

Major problem with price discrimination:

1. Charging higher price to a particular group may not be possible for long period of time, because in the due course the group will get to know that they are spending more than the usual price in the market. The firm must have to give them additional facilities and comforts to keep those customers.

2. Charging higher price which is not cost-justifiable might be unethical, since the uniform price is preferred more by the customers.

3. It could be possible that the lower-priced customers can resell the products with slightly higher price to higher-priced customers. It defeats the price discrimination policy.

4. The price discrimination annoys customers, since they feel that they are being cheated.