Answer to Question #219975 in Microeconomics for Sushant99

Question

What is meant by price discrimination? What are the conditions to make price discrimination effective? Discuss your answers with examples from the Airline Industry.

Answer 1

Price discrimination is a selling strategy where sellers charge different prices to sellers for the same product or services. For example, the airline industry practices price discrimination by restricting the number of discounted seats on each flight. Three factors that must be met for price discrimination to occur are that the firm must have market power. It must have the ability to prevent arbitration. For example, the airline industry is made up of a limited number of firms dominating the industry and can set prices.