Coupon price discrimination




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The seller knows and charges the maximum possible price every buyer is willing to pay. This creates a perfectly efficient market.

The Hurdle Model of Price Discrimination

The seller charges different prices based on either the quality or the quantity. Like discounts for bulk purchases quantity or charging more for first class seats quality. This is legal except in certain circumstances like race or religion based discrimination. For example, many stores sell their own credit cards which offer consumers special discounts and rewards. Examples of Price Discrimination.


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Airline travel and time of departure Airlines charge different prices depending on the season, time of the flight and day of the week. Quantity Purchased Many sellers offer quantity discounts for bulk purchases as a way to get buyers to buy more. Age Discounts A popular way to segment the market is by age category, e. Price Discrimination Conditions.


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The following conditions must be met for price discrimination to be successful: Firms must be able to control supply. Firms must prevent resale of products from one buyer to another. When you use coupons, you start by establishing a single price for the good.

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The price is then lower for customers possessing a coupon. In essence, coupons are another way to implement third-degree price discrimination.

Individualized Coupons Aid Price Discrimination

The rule for maximizing profit with third-degree price discrimination is. Customers in group B have the more elastic demand and use a coupon. These customers essentially pay the price P — C for the good.

Combining the last two equations with this information yields. For example, you own a restaurant at a vacation destination.

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