Question

draw graph for both a firm engaged in uniform pricing ( one price for all buyers )and for a firm engaged in indirect segment price discrimination.

a- which is more efficient in the economic sense?

b- which is better for consumer?

c- which results in higher profits?

d- normative question- is price discrimination a bad thing?

Answer 1

a) A firm engaged in indirect segment price discrimination is more efficient because the resource wastage (deadweight loss) is reduced under this case

b) Again, firm engaged in indirect segment price discrimination produces better results for consumers since those with lower willingness to pay are also able to purchase and at a lower price so that total consumer price is higher

c) A firm engaged in indirect segment price discrimination earns more profit

d) No. This is because different prices are used for different market segments enabling them to earn higher consumer surplus, it also reduces total deadweight loss and thus, is more efficient