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
The Term Paper on Price Discrimination Marginal Demand Revenue
Define, discuss, and account for the existence of price discrimination. Compare and exemplify the first, second, and third degrees of such discrimination. Overview Price discrimination is the practice of setting different pricing formulas in different virtual markets, while still maintaining the same product throughout. The prices are based upon the price elasticity of demand in each given market. ...
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 are the same regardless of
whether they are front seats or back seats,
centralised seats or rear seats. Cost of providing the
differently priced seats is similar
o The firm must have monopoly power. The greater the
monopoly power, the greater the ability to practice price
discrimination
Yes. The promoter has a degree of monopoly power.
Few substitutes to the band as the preamble
mentions that the band is a very popular band and it
is holding only one concert
o The firm must be able to segment the markets and the
markets must have different price elasticity of demand
Yes. Fans are likely to have a more price inelastic
demand and hence, willingness and ability to pay a
higher price for the tickets. the concert goers can be
segmented according to their differing price
elasticities of demand. Those very keen to see their
favourite singer will be willing to pay higher prices for
The Essay on Price Elasticity Of Demand 2
Supply and demand plays a vital role in the economy. Price is the central determinant of both the demand and supply, for example the higher the price of a good or a service the less the product is demanded. In circumstance where the price goes down, demand increases. The response of price and quantity demanded create an inverse relationship between the two. Whereas demand portrays the consumer ...
seats nearer to their idol.
