ECONOMICS
COMPETITION AND MARKET STRUCTURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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All firms sell the same product; customers can be divided into groups; there are no barriers to entry.
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Firms have market power; customers can be divided into groups; buyers can’t resell the product or service
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All firms sell the same product; customers can be divided into groups; buyers can easily resell the good or service
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None of the above
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Detailed explanation-1: -In order for price discrimination to work, businesses must prevent resale, must be able to operate in an imperfect market, and must demonstrate elasticities of demand.
Detailed explanation-2: -Which of the following conditions must be true so that a firm can price discriminate? price discrimination can occur if each consumer has a downward-sloping demand curve for the product.
Detailed explanation-3: -In a theoretical market with perfect information, perfect substitutes, and no transaction costs or prohibition on secondary exchange (or re-selling) to prevent arbitrage, price discrimination can only be a feature of monopolistic and oligopolistic markets, where market power can be exercised.
Detailed explanation-4: -However, competition from other firms will prevent any single firm from charging different prices for different units. A firm must have some monopoly power in order to successfully price discriminate.