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Chapter 5

10.6 Price discrimination pricing

A price-discrimination strategy is where a company sells the same
product or services at different prices in different markets, for reasons
not associated with costs.

Conditions required for a price-discrimination strategy.

 The seller must have some degree of monopoly power, or the price will be
driven down.

 Customers can be segregated into different markets.

 Customers cannot buy at the lower price in one market and sell at the higher
price in the other market.

 Price discrimination strategies are particularly effective for services.

 There must be different price elasticities of demand in each market so that
prices can be raised in one and lowered in the other to increase revenue.

 A black market may develop allowing those in a lower priced segment to resell
to those in a higher priced segment.

 Competitors join the market and undercut the firm's prices.

 Customers in the higher priced brackets look for alternatives and demand
becomes more elastic over time.

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