2) What are the characteristics of price discrimination and how does the bundlin

Question

2) What are the characteristics of price discrimination and how does the bundling of goods affect the outcome of price discrimination?

(Consider the following points from the text)

• When a seller cannot identify low- and high-value consumers or cannot prevent arbitrage between two groups, it can still discriminate, but only indirectly, by designing products or services that appeal to groups with different price elasticities of demand, who identify themselves based on their purchasing behavior.

• Metering is a type of indirect discrimination that identies high-value consumers by how intensely they use a product (e.g., by how many cartridges they buy). In this case, charge a big markup on the cartridges and a lower markup on the printer.

• If you offer a low-value product that is attractive to high-value consumers, you may cannibalize sales of your high-price product. • 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 a number of units.

• Bundling different goods together can 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.

Explanation / Answer

characteristics

Selling to different purchasers : We ought to add "buying from different sources of supply. Commodity: This should include services as well as goods, productive factors as well as products. Homogeneous: The commodities need not be homogeneous; they may be differentiated in many ways and, indeed, in several types of price discrimination differentiation is of the essence. At different prices: To sell different qualities or products with different marginal cost at the same price, or to buy different qualities or factors of different efficiency at the same price, is also discriminatory. And while there may be price discrimination without price differences, there may be differential pricing that is not discriminatory.

when price discrimination is not possible the seller can go for bundling to extract more consumer surplus. for eg. if someone want to purchase MS word and otherone wants MS excel and value the respective product more and other less. so by bundling together the two product the seller can xtract more surplus

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