Condition Required For Price Discrimination Economics Essay
Condition required for price discrimination: Each group of customer must have price elasticity of demand. Then firm can charge less for the group with more elastic of demand and charge more with inelastic of demand. ( ). Again, firm must prevent to market seepage', it means to prevent whose customer who buy a good or service at low price and sell it at high price to other customer.( )
Types of price discrimination: there are three types of price discriminations. First, second and third degree price discrimination.
First degree price discrimination: this is the ideal situation when monopolist can charge the reservation price to the customer and customers are also willing to pay. In first degree price discrimination, monopolist is able to capture whole customer surplus.( ) it is also called perfect discrimination. For Blackpool tower it is quite impossible to implement first degree price discrimination because no one wants to talk about their reservation price. But firm can set different price by estimating consumer's reservation price. To point AC=MR, firm can charge different price in between the highest price.
Second Degree Price Discrimination: it occurs when different prices are charged to different customer for the same product. Here, average buyer gets extra unit as he is using more unit of same good or service. Sellers can sell successive units as long as the cost is not bellow to marginal cost. Thereby, firm can charge high price for first unit and lower price but higher in quantity to maximize profit. As Blackpool going to introduce new 4D cinema.they can charge hight price for first 10 rows inorder to better view. There are many people who wants to get better and quality service in exchange of money.
Third degree price discrimination: it is the most popular form of price discrimination. The same product is charge diffrenly to different segment of the market. The main point is that consumer is willing and able to pay. There might be no relation of production cost. The blackpool tower can charge different price to the local people and the outsider. Local people might visit this several time, in order to get them it can be implemented. Moreover, blackpool Tower can be separated by time, off-peak our with elastic of demand and peak our with inelastic of demand. People are usually free on weekend and likely to have a tour with family. Childrens are always happy to get in to jungle jim. So management team can charge different price on weekend as it is price inelastic of demand.
Two part pricing tariffs: pricing power is another strength of monopoly firms. A fixed cost is charge for entry and supplementary variable charged as per unit used. Blackpool Tower can charge a fixed entry free which is acceptable to all the customers and then charge separately as per unite consumed. They are going to add Dungeon and 4D cinema. Customers can be charged extra for Dungeon. As 4d cinema in new technology in market so firm can charge extra for new attraction.
Product line pricing is also becoming an increasingly common feature of many markets, particularly manufactured products where there are many closely connected complementary products that consumers may be enticed to buy. It is frequently observed that a producer may manufacture many related products. They may choose to charge one low price for the core product (accepting a lower mark-up or profit on cost) as a means of attracting customers to the components / accessories that have a much higher mark-up or profit margin.
Advertising: market with power can effectively advertise to increase the demand of its product ( ). It can be argued that since monopoly market has no competition so what's the point to advertise? By ardertise market can gain more customer than before. Blackpool Tower is with economic scal, if it can increase demand by a lot by advertising than it can be reduce the production cost. If demand goes up then Blackpool Tower could gain more economic scale.
Bundling: bundling means selling two product together as a package , ( ). If Blackpool make a package can get more money. For example; if A pay 10 for Dungeon. and 12 for 4D and B pay 12 for Dungeon. and 10 for 4D. if Blackpool charge separately for each item, it can make 20 for each item for a total of 40. If blackpool package both together (not selling individually) and sell it 22 making a total profit of 44.
Quantity discount: another inevitable form of price discrimination is quantity discount ( ) this is a transparent form of price discrimination. Blackpool Tower can also apply this form to earn more profit. For example, the park charge £16.20 for adult, £12.00 for child, £48.00 for family (2+2). Now if they charge £50 for full family then larg family buyers who are tend to be price elastic will be encouraged to come and consume more. Therefore, compacy will gain more profit.
Price restrictions on purchase and use: to sort consumers in to different groups in relating to consumer behavior and price elasticity of demand, placing restriction oon purchse can be enforced. For example, Blackpool tower can price discriminate in several ways; offering lower price in adverse weather and offpeak time, advance purchase discount, special discount for regular customers. First track system would be another option that Blackpool tower can adopt to reduce waiting in cwe top get into or use the facilities in instant.
This paper has examined the theory of price discrimination and how this theory is put into
practice by competition authorities and sectoral regulators. In examining BW's existing boatuser licence pricing policy, it found that, provided evidence can be produced on issues such
as the costs that certain user groups impose on the network and the willingness to pay/price
elasticity of demand for different user groups, the majority of BW's pricing practices are likely
to be defensible. However, BW's practice of differentiating between commercially managed
boat-share agreements and those managed by private individuals does not seem defensible.
Despite this, depending on the characteristics of boat-share users, there is likely to be a
robust case for treating boat-share customers (irrespective of the way they are managed)
differently from individual users and/or other business users-for example, by charging all
boat-share agreement users for a business licence if they have similar characteristics to hireboat users.
Price discrimination presents an antitrust conundrum. Price discrimination
demonstrates the presence of market power and, if the level of discrimination is
significant and nontransitory, suggests that antitrust geographic or product markets
should be narrowly defined. At the same time, the presence of long-run market power
cannot be established by the presence or level of price discrimination. Moreover,
geographic markets based on price discrimination often are convoluted due to the
presence of some limited degree of arbitrage or substitution.
The prevalence of price discrimination likely will grow as technology-the
computing power to offer personalized prices-permits more subtle and effective
strategies. Effective antitrust analysis requires effective understanding of firm behavior.
As price discrimination grows more pervasive, it grows more important for antitrust
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