1.

Price Discrimination:

- What is it? Price discrimination is when a business charges different prices to different customers
for the same product or service.

- Why is it used? Firms do this to make more money by capturing the most value from each
customer.

- Conditions: Price discrimination works when the company has some market power (ability to set
prices), customers' willingness to pay differs, and they can prevent customers who pay less from
reselling to those who pay more.

2. Perfect Price Discrimination:

- What is it? Perfect price discrimination means charging each customer the maximum price
they're willing to pay for every single item. This way, the business captures all the potential profit.

- Pros and Cons: While it's efficient and profitable for the business, customers won't get any
discounts or deals. They'll pay the maximum price they're willing to pay.

3. Group Price Discrimination:

- What is it? In group price discrimination, the company divides customers into groups based on
certain characteristics and charges each group a different price.

- Example: This is like offering student discounts or senior citizen rates. Different groups pay
different prices.

4. Nonlinear Price Discrimination:

- What is it? Nonlinear price discrimination involves offering different prices based on the quantity
of items a customer buys.

- Example: When you get a discount for buying in bulk, that's nonlinear price discrimination.

5. Two-Part Pricing:

- What is it? In two-part pricing, you pay a fee for the right to buy a product and then an additional
fee for each unit you purchase.

- Example: Joining a club with a membership fee and then paying for each event separately.

6. Tie-In Sales:

- What is it? This includes requiring customers to buy one product to get another or selling multiple
products together as a bundle.

- Example: Requiring a specific game console to play certain games or bundling a meal deal at a
fast-food restaurant.

7. Advertising:

- What is it? Advertising is a tool companies use to tell people about their products and persuade
them to buy. This shifts the demand curve for their products.

- Why do companies advertise? They advertise to increase sales and, in turn, their profits.
Conditions for Price Discrimination:

1. A local theater charges lower ticket prices for matinee showings compared to evening showings.
What condition for price discrimination is being met here?

a) Market power

b) Identical demand curves

c) Resale prevention

d) Quantity discounts

2. A popular restaurant offers a special discount for senior citizens on weekdays. How does this
pricing strategy exemplify price discrimination?

a) It charges the same price to all customers.

b) It varies prices based on market demand.

c) It charges different prices to different customer groups.

d) It prevents all resale.

Perfect Price Discrimination:

3. A software company charges each corporate client the maximum amount they are willing to pay
for a software license. How does this relate to perfect price discrimination?

a) It sets a uniform price for all corporate clients.

b) It captures all consumer surplus under uniform pricing.

c) It charges different prices for the same product.

d) It eliminates all potential consumer surplus.

4. In a hypothetical market with perfect price discrimination, what happens to consumer surplus?

a) It increases compared to uniform pricing.

b) It remains the same as under uniform pricing.

c) It decreases to zero.

d) It varies based on consumer preferences.Group Price Discrimination:

5. An airline offers different ticket prices for economy class, business class, and first class passengers.
How does this pricing strategy reflect group price discrimination?

a) It charges the same price for all classes.

b) It offers discounts to loyal customers.

c) It divides customers into different groups.

d) It eliminates competition among airlines.

6. A hotel charges higher rates for rooms with ocean views and lower rates for rooms without the
view. What condition for group price discrimination is being met here?

a) Identical demand curves

b) Market power

c) Resale prevention

d) Price elasticity variations

Nonlinear Price Discrimination:

7. A cell phone service provider offers lower per-minute rates for calls as customers use more
minutes. How does this pricing strategy encourage self-selection?

a) It sets the same price for all call minutes.

b) It charges the same price for heavy and light users.

c) It allows customers to choose their effective price based on usage.

d) It prevents all resale.

8. An amusement park offers tiered pricing for entrance tickets: a basic pass for a fixed price and an
all-access pass for a higher price. How does this represent nonlinear price discrimination?

a) It charges the same price to all visitors.

b) It sets different prices for different groups of customers.

c) It charges the same price for all rides.

d) It adjusts prices based on the quantity of rides taken.

Two-Part Pricing:

9. A fitness center charges a monthly membership fee plus a per-class fee for access to specialized
fitness classes. How does this two-part pricing strategy affect consumers' behavior?

a) It encourages unlimited class attendance.

b) It discourages people from joining the gym.

c) It charges a flat fee for all services.

d) It prevents customers from attending classes.

10. A popular online streaming service offers a monthly subscription fee along with additional
charges for renting premium movies. How does this two-part pricing model impact customer
choices?

a) It encourages customers to watch more premium movies.

b) It reduces the overall subscription fee.

c) It charges the same price for all content. d) It eliminates premium movie options.
Resale:

 What is Resale? Resale refers to the act of purchasing a product or service and then selling it
to someone else, often at a higher price than the original purchase price.

 How to Prevent Resale: Companies employ various tactics to prevent resale, making it
harder for customers to profit from price discrimination.

 High Transaction Costs: When the transaction costs associated with resale are high,
customers are less likely to engage in it. For example, if you receive a discount for an
in-home plumbing service and then try to resell that service to your neighbor, the
transaction costs, such as time and effort required to coordinate, might outweigh
any potential profit.

 Vertical Integration: This strategy involves a company participating in multiple

stages of the production and distribution chain. By controlling various elements of
the supply chain, companies can deter customers from reselling products or services
to others.

Examples of Resale Prevention:

 Software Licenses: Many software companies sell licenses to use their products rather than
selling the software itself. This can include terms and conditions that prohibit the resale of
the software. For example, if you purchase a license for a specific piece of software, you may
not legally resell it to another individual.

 Event Tickets: Some event tickets are non-transferable, meaning they can only be used by
the person whose name is on the ticket. This prevents scalpers from buying tickets at a
lower price and reselling them at a higher price.

 Memberships: Gyms and other subscription-based services often require membership

agreements that prohibit the resale of access to the facility. Even if someone pays for a
membership, they typically can't legally sell access to the gym to others.

Price Discrimination:

 Definition: Price discrimination is the practice of charging different prices for the same
product or service based on various factors such as individual consumer characteristics,
group membership, or the quantity purchased.

 Examples:

 Airline ticket pricing: Airlines often charge different prices for the same flight based
on factors like booking time, class of service, and passenger type (e.g., business
travellers vs. leisure travellers).

 Movie theatres: Cinemas may offer discounted tickets for children, seniors, and
students while charging full price for adults.

Transaction Costs:

 Definition: Transaction costs refer to the expenses and efforts incurred during the process of
buying and selling goods or services. These costs can include time, effort, and any additional
expenses required for a transaction to occur.
  Examples:

 Online shopping: While shopping online, you may have to factor in shipping costs,
taxes, and the time it takes to browse, compare products, and complete the
purchase.

 Real estate transactions: When buying or selling property, transaction costs can be
substantial, involving fees for real estate agents, lawyers, inspections, and various
administrative tasks.

Block Pricing:

 Definition: Block pricing is a form of nonlinear price discrimination where a company

charges different prices for different blocks or quantities of a product. Typically, the price
per unit decreases as the quantity purchased increases.

 Example:

 Cellular data plans: Mobile phone providers often offer block pricing for data plans.
For instance, you might pay a certain price for the first 1 GB of data and a lower
price per GB for additional data, encouraging you to buy more data at once.

Advertising Influence on Consumer Behaviour:

 Definition: Advertising aims to influence consumer behaviour by changing perceptions and

motivating purchasing decisions.

 Examples:

 Celebrity endorsements: Companies may hire celebrities to promote their products,

banking on the celebrity's influence to convince consumers to buy those products.

 Limited-time offers: Advertisers often create a sense of urgency by promoting

limited-time discounts or exclusive deals, encouraging consumers to make quick
purchase decisions.