1)STIHL, Inc., manufactures gasoline-powered chain saws for professional, commercial, farm, and consumer markets. To â??better serveâ? their customers, STIHL offers its chain saws in four different quality lines and associated price ranges: occasional use, midrange, professional, and arborist. Under what circumstances could offering multiple qualities of a product be price discrimination? What form of price discrimination might this represent ----first, second, or third-degree price discrimination? Explain why this practice could increase profit at STIHL.
2) A woman complained to â??Dear Abbyâ? that a laundry charged $1.25 each to launder and press her husbandâ??s shirts, but for her shirtsâ?"the same description, only smaller â?" the laundry charged $3.50. When asked why, the owner said, â??Womenâ??s blouses cost more.â? Abby suggested sending all the shirts in one bundle and enclosing a note saying, â??There are no blouses here ---these are all shirts.â?
a. Is the laundry practicing price discrimination, or is there really a $2.25 difference in cost?
b. Assuming the laundry is engaging in price discrimination, why do men pay the power price and women the higher?
c. Could the laundry continue to separate markets if people followed Abbyâ??s advice? What about the policing costs associated with separating the markets?
1) Any attempt to separate the market into different segments based on their willingness to pay is price discrimination. In this case, there could be differences based on the type of work being done. Someone who uses chain saws only occasionally is probably not going to want to pay as much for one as someone who uses it all the time. This is a form of third degree price discrimination. It increases profits by transferring consumer surplus to STIHL. If STIHL were to charge a price somewhere between its low and high prices, it would get less money from the professionals, and lose ...
Examples of price discrimination chain saws and dry cleaning