Asked by Angela Mejias on Apr 29, 2024

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​For direct price discrimination to work effectively

A) ​The low-valued customers should not be able to engage in arbitrage
B) You need to charge the same price to the different groups
C) Both groups should have the same elasticity of demand
D) ​None of the above

Direct Price Discrimination

The practice of charging different prices to different consumers for the same product or service, based on their willingness to pay.

Arbitrage

The simultaneous buying and selling of assets in different markets to exploit price differences for profit.

Elasticity of Demand

A gauge for the responsiveness of how much a product is wanted relative to fluctuations in its price.

  • Ascertain the essential conditions that enable price discrimination to work effectively.
  • Acquire knowledge about the tactics firms adopt to inhibit arbitrage amid price discrimination practices.
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AB
Amanda BorisowMay 01, 2024
Final Answer :
A
Explanation :
Direct price discrimination involves charging different prices to different groups of customers based on their willingness to pay. To make it effective, it is important that low-valued customers cannot engage in arbitrage, i.e. they cannot resell the product to high-valued customers at a lower price. This would defeat the purpose of price discrimination, as high-valued customers would simply buy from the low-valued customers at a lower price, resulting in lower profits for the seller. Therefore, choice A is the best answer. Choices B and C are not accurate, as charging the same price to different groups or having the same elasticity of demand are not requirements for direct price discrimination to work effectively.