Suppose that a firm has "pricing power" and can segregate its market into two distinct groups based on differences in elasticities of demand. The firm might charge
A)a lower price to the group that has the less elastic demand.
B)a higher price to the group that has the less elastic demand.
C)the same price to both groups but include a "free" related product for the group that has an inelastic demand.
D)the same price to both groups but make it difficult for the group with the more elastic demand to gain access to the product.

Question

Quizplus · Accepted Answer

A firm with pricing power and the ability to segment its market based on demand elasticity will charge a higher price to the group with less elastic demand. This is because consumers in this group are less sensitive to price changes and are willing to pay more for the product.

Suppose That a Firm Has "Pricing Power" and Can Segregate