10.3 Price Discrimination LO 4
Any firm that faces a downward-sloping demand curve can increase
its profits if it can price discriminate.
Successful price discrimination requires that the firm be able to
control the supply of the product offered to particular buyers and to
prevent the resale of the product.
A firm that price discriminates among units will produce more output
than if it sets only a single price. Price discrimination of this type is
possible only if it can monitor use of the product by consumers.
A firm that discriminates between different market segments will
equate MC and MR in each segment. The segment with the less
elastic demand will have the higher price.
Hurdle pricing is a common form of price discrimination that requires
customers to overcome some obstacle in order to benefit from a lower
price. This method of price discrimination leads customers to reveal
through their actions which market segment they are in.
If price discrimination leads the firm to increase output, market
efficiency is improved. In general, some consumers will benefit and
others will be made worse off by price discrimination.