To practice indirect or second-degree price discrimination, a firm must have:
I. a Lerner index equal to zero.
II. market power and the ability to prevent resale.
III. customers with different demand curves, without the firm knowing which customers have which type of demand before purchase of the product.
A) I and II
B) I, II, and III
C) II and III
D) I and III

Question

Quizplus · Accepted Answer

Second-degree price discrimination involves charging different prices based on the quantity or version of a product purchased, not on the identity of the buyer. It requires market power and the ability to prevent resale (II), and it benefits from customers having different demand curves, even if the firm doesn't know these curves in advance (III). A Lerner index of zero, indicating no market power, would not support price discrimination.

To Practice Indirect or Second-Degree Price Discrimination, a Firm Must