A manufacturer of Covid-19 vaccines sets higher prices in China than Indonesia. Under what conditions does this pricing policy increase profit?

Question

Quizplus · Accepted Answer

The pricing policy increases profit when demand in China is less price elastic than in Indonesia, meaning Chinese consumers are less sensitive to price changes and still buy the vaccine. Additionally, to maintain higher prices in China, it's crucial that Chinese consumers cannot bypass the higher prices by purchasing the vaccine from Indonesia, where it's cheaper. This prevents arbitrage, where goods are bought in a lower-priced market to be sold in a higher-priced one.

A Manufacturer of Covid-19 Vaccines Sets Higher Prices in China