Clarify terminology by defining price discrimination (PD) and state the conditions for PD
o Economic framework: Firm‟s level of analysis; PD
o What is price discrimination?
Define what is price discrimination
o State the 3 degrees of price discrimination.
o Explain the necessary conditions for 3
rd
degree price discrimination to be practiced
Degree of monopoly power
No resale of goods
Segmented markets with differing price elasticities of demand
Thesis (must place response within the popular concert and seating arrangement context)
o Explain that this pricing policy may be considered to be an example of price
discrimination because it fulfils some or all of the conditions of price discrimination
Identify that the pricing policy is an example of third degree price
discrimination
Define third degree price discrimination and explain why this pricing
policy is an example of third degree price discrimination
o Charging the same product (in this case, to watch the
concert) at different prices to different consumers for reasons
not associated with cost differences
o Same product – watch the concert
o Loyal fans will be willing to pay a higher price for the tickets
and will have a more price inelastic demand than non-fans.
Fans who prefer to have a close up view of the pop idol(s)
will have a more price inelastic demand than non-fans.
Hence firm can charge fans who demand for a seat closer to
the stage or a more centralised seat a higher price than non-
fans who are not particular about their seats. Hence firm can
charge a higher price for seats that are closer or more
centralised to the stage than those further away from the
stage or at the rear
Explain why the conditions of PD are fulfilled in the given context
o Differences in price not due to cost differences
Yes. Cost of producing the seats, of renting the
venue, of hiring the band, of logistics and
administrative costs...
No comments