The Management Environment ? BM101
"Elaborate on what is required before a firm can perfectly Price Discriminate."
The following assignment will comprise of information based on the article by Geoff Stewart, 2003 and will attempt to examine the different factors that are required before a firm can set prices in a discriminatory fashion. Business firms may find that by charging different customers different prices for a common product may actually increase the profits of the firm. This charging of different prices for a particular good is known as Price Discrimination (Britton, 2003) and is very common in various monopolistic markets. The article by Stewart, (2003) uses the concept of student discounts as an example of price discrimination. This is where they are given the advantage of buying various goods or services at a discounted rate due to their lower willingness to pay because of their income and also their position in the market. The essay will aim to identify why price discrimination occurs, why it exists for some items but not others, and whether it results to an increase or reduction in economic welfare.
According to Stewart, (2003) there are three main factors that a firm needs to consider before it can use price discrimination: They must have market power and usually be a monopolist because if there was high competition with other firms, the consumer would simply choose a rival product at a cheaper price which would defeat the object of using price discrimination to maximise profits because the sales would fall. The firm therefore requires power over price and consequently price discrimination is not possible in a perfectly competitive environment. Secondly, a firm would need to obtain information on the wil ...