How does the elasticity of demand influence a company's ability to implement price discrimination?

The elasticity of demand refers to how sensitive consumers are to changes in price. If demand is elastic, a small increase in price can lead to a large drop in the quantity demanded, making it risky for a company to raise prices. On the other hand, if demand is inelastic, consumers will continue to buy the product even if the price increases, giving the company more room to charge different prices. For example, a company selling luxury cars may find that wealthy buyers are less sensitive to price changes, allowing them to implement price discrimination by charging higher prices to those who can afford it while offering discounts to others. Understanding elasticity helps companies decide how to set prices for different groups of customers effectively.