Question

Dremel sells a high-speed rotary tool appropriate for many workshop projects. They have developed hundreds of accessories and bits for their tools for many different applications.

Provide two examples of third-degree price discriminating schemes Dremel can use to maximize profit.

Answer 1

The third degree price discrimination involves different price to different group of customers. The first example is to give some discounts on price (say 10%) to engineering students, but charge the full price to the firms. It should be done to increase the customer base as engineering students have to pursue different projects, but they cannot afford to pay full amount.

The second example is offering membership to firms and if these firms go for the membership then they get bigger discounts (say 20%) on the products than those who do not opt for the membership. For this, firms have to give a particular amount of business to Dremel. So, price discrimination takes place between member firms and non member firms.