Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The ability to segment the market into distinct groups with different elasticities of demand
B
The presence of perfect competition in the market
C
The inability to prevent resale of the product between market segments
D
A uniform pricing strategy across all consumer segments
Understanding the Answer
Let's break down why this is correct
Answer
Third-degree price discrimination happens when a seller charges different prices to different groups of customers based on their willingness to pay. For this to work effectively, the seller must be able to identify different groups of customers and their price sensitivities. It is also essential that the seller can prevent customers from reselling the product to others, which could undermine the pricing strategy. For example, a software company might charge students a lower price for their product compared to businesses because students typically have less money to spend. With advancements in technology, companies can more easily gather data on customer preferences, allowing them to tailor prices to maximize profits while still serving different market segments.
Detailed Explanation
To successfully charge different prices, a business needs to divide customers into groups. Other options are incorrect because Some might think that perfect competition helps price discrimination; It's a common belief that if products can be resold, price discrimination won't work.
Key Concepts
third-degree)
conditions for price discrimination to be effective
impact of technology on price discrimination
Topic
Understanding Price Discrimination
Difficulty
hard level question
Cognitive Level
understand
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