Quiz 14: Advanced Pricing Techniques
Price discrimination (Second degree) is important because each product can be used in different ways by different consumers. Price discrimination can be used in situations when firms want to enter in every segment of market as it cannot enter every market at the same price. They have to reframe their price structure based on consumer marginal valuations while entering into respective markets. This will no doubt improve the profit level of the company as it allows the consumers to choose their desired level of price by choosing a higher or lower quantity of goods. Usually second degree price discrimination occurs in the form of quantity discounts i.e. a lower price at higher quantities. So, consumers are tempted to buy more quantity in order to have to pay lower prices. This helps producers to sell larger quantities, though at a smaller profit margin. However, because of more quantities sold, the overall profit increases.
Price discrimination works by charging different prices from different sets of consumers. It helps create distinction in the market by setting different prices for different groups of people. Though it is a profitable act for the monopolists, it is sometimes equally bad for the consumers. For e.g. in cases where producers charge higher prices in neighborhoods where people have lesser alternatives available, price discrimination can prove to be harmful to consumer surplus. Also, charging different prices to people based on ethnicity, gender and skill status also imposes a higher cost on the society at the expense of higher producer profits.
Airline industry implemented the policy to have photo identification machines to check baggage before boarding a flight is a good step towards safe travelling without any extra costs. This will not only help avoid terror threats but will also help in stopping people from carrying unnecessary things that might prove to be harmful inner side the flight. Moreover, terrorist attacks can happen anywhere and anytime. Thus, it is always better to take necessary steps to avoid such mishaps. According to their say, it is better to be safe than sorry!