Price-discriminating firms that sell in two markets will charge higher prices in the market,ceteris paribus,

Question

Quizplus · Accepted Answer

When a firm price-discriminates in two markets, it charges higher prices in the market with the more price-inelastic demand. This is because a higher price elasticity of demand means that consumers are more sensitive to price changes and may switch to substitutes if prices become too high. In contrast, in a market with more price-inelastic demand, consumers are less sensitive to price changes, allowing the firm to charge higher prices without losing many customers.

Price-Discriminating Firms That Sell in Two Markets Will Charge Higher