For direct price discrimination to work effectively
A)The low-valued customers should not be able to engage in arbitrage
B)You need to charge the same price to the different groups
C)Both groups should have the same elasticity of demand
D)None of the above

Question

​For direct price discrimination to work effectively
A)​The low-valued customers should not be able to engage in arbitrage
B)You need to charge the same price to the different groups
C)Both groups should have the same elasticity of demand
D)​None of the above

Quizplus · Accepted Answer

Direct price discrimination involves charging different prices to different groups of customers based on their willingness to pay. To make it effective, it is important that low-valued customers cannot engage in arbitrage, i.e. they cannot resell the product to high-valued customers at a lower price. This would defeat the purpose of price discrimination, as high-valued customers would simply buy from the low-valued customers at a lower price, resulting in lower profits for the seller. Therefore, choice A is the best answer. Choices B and C are not accurate, as charging the same price to different groups or having the same elasticity of demand are not requirements for direct price discrimination to work effectively.

​For Direct Price Discrimination to Work Effectively

For Direct Price Discrimination to Work Effectively