In 1996,Victoria's Secret shipped different catalogs to customers based on their buying habits.Frequent customers received catalogs with lower prices,whereas new customers received catalogs with higher prices for those same items.What is the firm's motivation for practicing price discrimination,despite knowing that if its customers found out,the company could potentially experience a loss in sales?
A) Price discrimination increases profit.
B) Reservation pricing decreases cost.
C) Price determination offsets risk.
D) Efficient pricing clears the market.
E) Price discrimination decreases deadweight loss.

Question

Quizplus · Accepted Answer

The firm's motivation for practicing price discrimination is to increase profit. By charging higher prices to new customers who are less likely to be aware of the company's history of lower prices for frequent customers, Victoria's Secret can maximize revenue from both groups. This strategy allows the firm to capture more of the consumer surplus and increase overall profits. Although there is a risk of customers finding out and potentially decreasing sales, the potential profits from price discrimination outweigh the potential losses.

In 1996,Victoria's Secret Shipped Different Catalogs to Customers Based on Their