Price discrimination is a simple business strategy that is employed to elevate the sales and revenues received from a particular product manufactured in the market. It is done by allotting different prices for the exact same product or service to different sectors of the society.
The technique of price discrimination can be regarded as a microeconomic strategy of pricing. Details of this topic are very important for marketing and business administration students to know.
Price Discrimination homework answers are available on the internet as well as textbooks by famous writers. Students must engage in thorough research to construct appropriate answers which have flow and is packed with content. They can also get help from tutorial sites that feature in assignment and project assistance for interested school or college students,
Types of price discrimination and their important features
- Price discrimination of the first-degree–
Students sometimes tend to confuse between perfect price discrimination and the first-degree price discrimination. This is the form of strategy a company calls for to charge different prices for every separate unit that is consumed.
A firm has the authority to charge different prices for different products manufactured by it. This allows it to earn the entire consumer surplus available at the present times. Having said this, we must also know that first-degree price discrimination is seldom used in practice meaning its application is the rarest.
- Price discrimination of the second-degree–
Second-degree price discrimination is also a mode of nonlinear pricing of goods that are sold according to quantity. This form of price discrimination is utilized to charge distinct prices according to the quantity of the product manufactured by a company.
They tend to levy discounts on bulk purchases of certain goods. This accounts for the most common type of second-degree discrimination.
The revenues earned from second-degree discrimination amounts to a nonlinear function. Students must have the knowledge about the correct ways to distinguish to between the types of price discrimination. They can apply these concepts while constructing price discrimination homework answers or other assignments.
- Price discrimination of the third-degree–
The third-degree price discrimination is the method of charging different prices from the different consumer quarters. For example, the railway travelers can be distinctly divided into two categories, the casual travelers, and the daily commuters.
Another example can be that of the cinema goers that can be further divided into adults and the children. Third-degree price discrimination is the most common form of a strategy employed by different sectors of the society.
Vital conditions for processing successful price discrimination
Price discrimination to actually work out requires the following of a few strict guidelines or conditions. They are summarized below-
- The company must possess the suitable means to recognize particular market segments. This may include industrial users and domestic uses.
- A firm must always acquire a certain degree of power of monopoly.
- Employees must rise above a clear concept of elastic and inelastic sub-markets in order to maintain proper distinctions between the dealings of the two.
- It should be monitored there that there must not be any sort of leakage amongst two markets. A consumer must not conduct unauthorized business. This means he cannot buy products at a lower rate form the elastic market and earn revenues by selling them to other consumers in an inelastic sub-market. These loopholes must be kept under check.
- A market is required to maintain distance or kept distinguished in terms of time, nature of the usage and also physical distance. The time-based pricing of goods can also be termed as the dynamic process of pricing, and this is common in the case of e-commerce or online sale of commodities. Here prices differ by the real-time requirement of a certain product, and hence it differs by the second.
These necessary conditions have to be at any cost in order to facilitate proper price discrimination. Students must be well-aware of these points as they will have immense practical application later. This will also help them write price discrimination homework answers more efficiently and earn them extra credits in the process.
Honest evaluation of the price discrimination techniques
Advantages of price discrimination
Before we start summarizing the ways in which price discrimination is advantageous to our market and the society, we have to do by taking into account the individual quarters benefitting from it.
- Protects businesses that earn low revenues from going bankrupt–
This is probably the biggest advantages of price discrimination. They allow unprofitable business houses to carry on their proceedings without the fear of risking it all. There may be instances where there may not be any possible price that can earn some amount of profits.
But price discrimination helps reverse a loss into considerable profits if not huge returns. This is surely better than closing down a business completely.
- Some business benefit from the low pricing of goods–
Price discrimination gives the allowance to the firm to cut down prices of their products for consumers who are relatively sensitive to chargeable prices. For example, we can consider certain travel booking companies who provide special discounts to students.
- Price discrimination help to avoid a great deal of congestion–
Price discrimination can be channelized to be a method to manage and control demand for certain goods. For instance, if there weren’t any provision for price discrimination, the rush hour commutes would be even more crowded. This doesn’t happen since daily commuters are given discounts to travel later and take other commutes.
These advantages are greatly beneficial for all sectors of an economy and must be upheld in the upcoming years. Students who are willing to establish themselves in the field of marketing or finances must be able to relate to these sub-topics of their major stream. They are advised to know these to produce well-constructed price discrimination homework answers that have practical instances and explanations of the topic in question.
Limitations of price discrimination
- The capacity to maintain price discrimination is limited for sure if the necessary conditions are not followed completely which is most of the time. We can also say that like everything else; there are definite levels till which prices of commodities can be altered and applied.
- Certain groups of consumers mostly lose out on the consumer surplus because most of the times they are detoured towards the producers.
- The salient features of monopoly are sometimes exploited in inappropriate ways to discriminate in terms of This is the case when the consumers are observed to pay way more than that of the other.
Students must know these crucial points to conduct fair business later in their career. These sections comprise a major part of their course in college. Knowing these will also assist them in composing right price discrimination homework answers.
Like all other features and techniques of business, price discrimination to has its determined limitations beyond which it tends to abuse the guidelines of conducting truthful business. These points have to be considered whenever a person or a sector set foot in the business industry. They do not have the authority to go beyond the predetermined rules and earn undeserved revenues in the process.