Questions Answers What is required for a firm to engage in price discrimination
ID: 1151924 • Letter: Q
Question
Questions
Answers
What is required for a firm to engage in price discrimination as a type of pricing strategy?
Why would arbitrage interfere with a firm’s ability to price discriminate (charge some consumers more than others)?
To engage in perfect price discrimination, what must a firm know about its consumers and when must it know this?
To engage in segmenting price discrimination, what must a firm know about its consumers?
If the firm engages in a segmenting pricing strategy, what determines which segment pays a higher price?
For a quantity discount to work as a form of price discrimination, what must be true about the price elasticity of demand for high-volume consumers compared to the price elasticity of demand for low-volume consumers?
What is the defining feature of an oligopoly?
What is a Nash Equilibrium in oligopolistic competition?
What is a feature of an oligopolistic market that would make collusion between firms relatively easier?
What makes an oligopoly model Bertrand competition?
What makes an oligopoly model Cournot competition?
Questions
Answers
What is required for a firm to engage in price discrimination as a type of pricing strategy?
Why would arbitrage interfere with a firm’s ability to price discriminate (charge some consumers more than others)?
To engage in perfect price discrimination, what must a firm know about its consumers and when must it know this?
To engage in segmenting price discrimination, what must a firm know about its consumers?
If the firm engages in a segmenting pricing strategy, what determines which segment pays a higher price?
For a quantity discount to work as a form of price discrimination, what must be true about the price elasticity of demand for high-volume consumers compared to the price elasticity of demand for low-volume consumers?
What is the defining feature of an oligopoly?
What is a Nash Equilibrium in oligopolistic competition?
What is a feature of an oligopolistic market that would make collusion between firms relatively easier?
What makes an oligopoly model Bertrand competition?
What makes an oligopoly model Cournot competition?
Explanation / Answer
1) What is required for a firm to engage in price discrimination as a type of pricing strategy?
Answer : Price discrimination can only occur if certain conditions are met : identification of market segments , elasticities of different segments , no perfect competition in the market , the firm must have some degree f monopoly power etc .
2) Why would arbitrage interfere with a firm’s ability to price discriminate (charge some consumers more than others)?
Answer : Arbitrage can occur if another entity buys the product from the market where the price is low and sells the product in the market where the price is high . So ultimately all the consumers end up paying the higher price . so price discrimination fails .
3) To engage in perfect price discrimination, what must a firm know about its consumers and when must it know this?
Answer : First-degree price discrimination also called perfect price discrimination, occurs when a firm charges a different price for every unit consumed . The firm is able to charge the reservation price for each unit which enables the firm to capture all available consumer surplus for itself . So a firm has to know each customer's reservation price . The firm should know this before charging a customer , different price for different people .
4) To engage in segmenting price discrimination, what must a firm know about its consumers?
Answer : Third-degree price discrimination means charging a different price to different consumer groups . This is called segmenting the market and then charging differently . The firm must know the price elasticities of demand and the reservation prices of each group separately .
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