A necessary condition for a monopolist to successfully practice ordinary price discrimination is the:
A)identification of buyers' reservation prices in all isolated markets.
B)ability to segment its total market.
C)identification of different price elasticities for each buyer.
D)existence of profitable arbitrage between markets.

Question

Quizplus · Accepted Answer

The ability to segment its total market is a necessary condition for a monopolist to successfully practice ordinary price discrimination. This means that the monopolist is able to identify different groups of buyers with different willingness to pay, and charge each group a different price. This requires that the monopolist is able to distinguish between the different segments of its market and prevent buyers from arbitraging between markets. Identification of buyers' reservation prices in all isolated markets or different price elasticities for each buyer are not necessary conditions for price discrimination to be successful. The existence of profitable arbitrage between markets would actually prevent price discrimination from being successful.

A Necessary Condition for a Monopolist to Successfully Practice Ordinary