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Price Discrimination for Car Dealerships

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Why is first-degree price discrimination seldom possible? Use the example of a car dealership to defend your answer. You will also want to employ the three conditions necessary for price discrimination in your answer.

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Solution Summary

This answer assist looks at the conditions necessary for price discrimination. It uses the example of a car dealership to show how each of the conditions plays out in a real world example.

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Price discrimination is the process of charging different prices to different consumers based on the willingness to pay. Perfect price discrimination results in zero consumer surplus as each consumer pays at their personal level of willingness to pay.

The three conditions that must exist for price discrimination to exist are: 1) consumers must be kept separate, 2) there cannot be arbitrage amongst consumer groups, and 3) producers must have some ...

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