Which of the following is not necessary for a firm to be able to engage in price discrimination?
A)A firm must have some market power.
B)A firm must have some information about its consumers' willingness to pay.
C)A firm must be a price-taker.
D)A firm must be able to prevent arbitrage.

Question

Quizplus · Accepted Answer

Price discrimination involves a firm being able to charge different prices to different groups of consumers. Therefore, a firm must have market power (i.e. the ability to influence the market price), must have information about consumers' willingness to pay, and must be able to prevent arbitrage (i.e. the practice of taking advantage of price differences between markets). However, being a price-taker (i.e. unable to influence the market price) would make it difficult for a firm to engage in price discrimination. A firm that engages in price discrimination cannot be a price-taker. Price-takers are firms that have no market power and must accept the market price. Since price discrimination requires some degree of market power, option A is necessary. Additionally, in order to effectively practice price discrimination, a firm must have information about its consumers' willingness to pay (option B) and be able to prevent arbitrage (option D).

Which of the Following Is Not Necessary for a Firm