Would an organization benefit from using direct or indirect price discrimination. Why or why not? Provide an example.
Price discrimination is the practice of charging different prices from different customers for the same product. Yes, organization benefit from price discrimination.
Read also Skimming Pricing Strategy
In direct price discrimination, a monopolist gains maximum as he extracts whole consumer surplus available to a consumer. A monopolist charges highest possible price from different consumers on the basis of maximum amount they are willing to pay, thus leaving them with no consumer surplus. Example of direct discrimination is the markets for unique art pieces and online auctions.
Read also Price Ceiling And Its Advantages And Disadvantages
Under indirect price discrimination, a monopolist charges that amount from the consumer which leaves them with some amount of consumer surplus. It involves the seller charging different marginal prices depending upon the quantity of goods purchased. The seller does not need to exogenously divide the consumers into classes. The schedule of prices offered to consumers is designed so that each consumer reveals his type by self-selecting a quantity to purchase with corresponding marginal price. This kind of price discrimination is called block pricing.
Order Unique Answer Now