Price discrimination is a rational strategy for a profit-maximising monopolist when:
A)there is no opportunity for arbitrage across market segmentations
B)there is an opportunity for arbitrage across market segmentations
C)consumers are unable to be segmented into identifiable markets
D)they want to increase the deadweight loss that results from profit-maximising behaviour

Question

Quizplus · Accepted Answer

Price discrimination is most effective when there is no opportunity for arbitrage across market segments. If consumers can easily buy a cheaper product intended for a different market segment, then the monopolist would lose sales and revenue from the higher-priced segment. Therefore, in order to effectively price discriminate, the monopolist must ensure that there are no opportunities for consumers to arbitrage between the different market segments.

Price Discrimination Is a Rational Strategy for a Profit-Maximising Monopolist