Define price discrimination, creating & capturing value, economies of scope
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1) Define the different degrees of price discrimination. Provide one real world example for each.
2) Define the concepts of creating and capturing value. Which is easier to accomplish?
3) Define economies of scope. Provide two real world examples.
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Managerial Economics and Organizational Architecture
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1) Define the different degrees of price discrimination. Provide one real world example for each.
Answer-
As per Traditional economic theories, Price Discrimination was supposed to be a toll for monopolists only. But in real world, many business firms have the ability to charge prices for their products consistent with their best interests even thought they may not be characterized as monopolies. These price makers operate in competitive markets but find that due to unique characteristics of their products or industry they may have some discretion over product pricing. These firms may find that by charging different customers different prices for a common product may actually increase the profits of the firm. This charging of different prices for a particular good is known as Price Discrimination and is very common in various markets around the globe.
Price discrimination is categorized into three types:
First degree price discrimination - charging what ever the market will bear,
Second degree price discrimination - quantity discounts or versioning,
Third degree price discrimination - separate markets and customer groups.
First Degree Price Discrimination
This first type of product pricing is based on the seller's ability to determine ...
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