When a company introduces new audio products, it often initially sets the price high and lowers the price about a year later. This is an example of:
A) a two-part tariff.
B) second-degree price discrimination.
C) intertemporal price discrimination.
D) first-degree price discrimination.

Question

Quizplus · Accepted Answer

Intertemporal price discrimination involves charging different prices at different points in time. In this case, the company is charging a higher price initially and then lowering it after a year. This strategy is often used to capture the maximum amount of profit from early adopters who are willing to pay a premium price, while still attracting price-sensitive consumers later on. It is not two-part tariff because it does not involve a fixed fee and a per-unit charge, nor is it second-degree or first-degree price discrimination because it is not based on the quantity or individual consumer's willingness to pay.

When a Company Introduces New Audio Products, It Often Initially