When a firm practices price discrimination in two market segments, the firm:
A) must be able to identify market segments that have different price elasticities.
B) will typically charge higher prices in the larger market segment.
C) must be selling a heterogeneous product.
D) must choose market segments that have inelastic demand.
E) sets price according to the different costs of serving different market segments.

Question

Quizplus · Accepted Answer

Price discrimination relies on identifying market segments that have different price elasticities. If the segments have similar price elasticities, then the firm may not be able to charge different prices without losing sales in one or both segments. Therefore, identifying different price elasticities is essential for price discrimination to be successful.

When a Firm Practices Price Discrimination in Two Market Segments