Price discrimination is the practice of selling the same good at more than one p

Question

Price discrimination is the practice of selling the same good at more than one price when the price differences are not justified by cost differences. Evaluate the following statement: "Price discrimination is not possible when a good is sold in a perfectly competitive market." False, because perfectly competitive firms do not profit maximize by setting marginal revenue equal to marginal cost True, because perfectly competitive firms have no market power None of these choices False, because perfectly competitive firms have market power

Explanation / Answer

Under conditions of perfect competition goods and services get sold at market price, and therefore there is little or no scope of price discrimination.

Price discrimination requires that firms
1) effectively distinguish consumer segments w/ different price elasticities of demand
2) prevent resale of their good/service between consumer segments

The second requirement can’t be achieved in a perfectly competitive market because there’s no barrier preventing the low-cost customer from entering the market to resell the product for an arbitrage profit.

Therefore the answer to this question is option (B).

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