Question

Define price discrimination. What is necessary in order to effectively price discriminate.

Answer 1

Price Discrimination is a pricing strategy usually applicable in imperfect markets where similar goods are sold at different prices by same product/ service provider. The classic example of price discrimination is while booking airline tickets Price discriminations majorly depends on two factors –

Elasticity of Demand

Consumer willingness to pay

Successful price discrimination depends on two conditions – Identify customer segment based on price elasticity & ability to enforce differential pricing on customer. For example: Business travelers usually pay more than other passengers in an airline because they are offered tickets only thru expensive travel agencies like American Express. Other modes of selling tickets to business travelers thru discounted travel websites is usually not allowed.