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Price Discrimination

Some charge that third degree price discrimination is unfair or that it reduces social welfare. Why does charging one group a lower price hurt anyone? Please explain.

b. McDonald's charges a higher price for a Big Mac in New York City than it does in a small town in Iowa. Is this an example of third degree price discrimination?

b. In the Sunday newspaper, there are usually coupons that you can clip and take to the store to save money on products. Anyone can buy a newspaper, and the value of the coupons eaisly exceeds the price of the newspaper for most consumers. Is this an example of price discrimination? Please Explain.

c. Would it ever make sense for a firm to charge a price at or below the cost of the product. Please Explain

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Some charge that third degree price discrimination is unfair or that it reduces social welfare. Why does charging one group a lower price hurt anyone? Please explain.

Charging one group a lower price might hurt someone because it might result in arbitrage opportunities if price discrimination occurs in the same town. The consumer which has obtained the product at lower prices can sell to other consumers at the higher prices. Therefore, it is ethically not benefitting all the consumers. Even though price discrimination generally leads to more efficiency in the economy, it is generally opposed by consumers as they consider it unfair.

McDonald's charges a higher price for a Big Mac in New York City than it does in a small town in Iowa. Is this an example ...

Solution Summary

Some charge that third degree price discrimination is unfair or that it reduces social welfare. Why does charging one group a lower price hurt anyone? Please explain.

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