Question

Loyalty plans offered by booksellers can be viewed as a form of:

a) price discrimination, offering lower prices to people that are more price sensitive and higher prices to everyone else.

b) a price ceiling, creating an artificial shortage of top-selling books.

c) contract manipulation, charging prices that mimic monopolies.

d) a public good because everyone benefits from its use.

Answer 1

Price discrimination, offering lower prices to people that are more price sensitive and higher prices to everyone else

Price discrimination is a practice by a seller of charging different prices from different buyers for the same product. Loyal plan is a plan by which seller charges lower prices to the buyers who are price sensitive and higher prices to everyone else. In this way seller charges different prices from different buyers for the same product and therefore loyalty plans are viewed as price discrimination.