Question

. Because of the rise of digital distribution of video games, video game developers are now able to directly control the retail price of their products, rather than retail prices being set by many competing stores like Best Buy and Game Stop. A common pricing strategy for video game developers is to sell a game at a high price when a new game is first released; some time later (usually a year or more after release), they will offer the same game at a discount. This is an example of: a. A two-part tariff, which is a form of second-degree price discrimination. b. A two-part tariff, which is a form of third-degree price discrimination. c. Intertemporal Price Discrimination, which is a form of second-degree price discrimination. d. Intertemporal Price Discrimination, which is a form of third-degree price discrimination.

Answer 1

Option D.

• Intertemporal price discrimination refers to charging a high price at first and then lowering the prices at a later time.
• This price discrimination is a form of third degree price discrimination as the two prices are used to divide the market consumer's into two segments, one with high demand and another with low demand.
• Here as the video game developers are first selling the video game at high price and them offering the same game at a discount, it is actually performing an intertemporal price discrimination.