Price discrimination is based on observable customer characteristics:
A) when a firm can distinguish consumers with a high versus low willingness to pay.
B) when a firm offers a menu of alternatives, designed so that different customers will make different choices based on their willingness to pay.
C) when a monopolist knows perfectly the customer's willingness to pay for each unit its sells and can charge a different price for each unit.
D) in all cases.

Question

Quizplus · Accepted Answer

Price discrimination is based on observable customer characteristics when a firm can distinguish consumers with a high versus low willingness to pay. In this case, the firm can charge different prices to different consumers based on their individual characteristics. This type of price discrimination is called "first-degree price discrimination" or "perfect price discrimination." It is the most efficient form of price discrimination because the firm can charge each consumer the maximum price they are willing to pay, thus capturing all of the consumer surplus.

Price Discrimination Is Based on Observable Customer Characteristics