In order for price discrimination to be successful:

Question

Quizplus · Accepted Answer

Price discrimination relies on keeping markets separate in order to charge different prices to different groups of consumers. If markets are not kept separate, consumers will find out about the lower price and arbitrage will occur, which would eliminate the price discrimination strategy. Therefore, choice B is the correct answer.

Choice A is incorrect because strong arbitrage would eliminate the ability to charge different prices in different markets.

Choice C is incorrect because price discrimination is most effective when demand is relatively inelastic - this allows firms to charge higher prices to customers who are willing to pay more without losing a lot of sales from customers who are unable or unwilling to pay.

Choice D is incorrect because price discrimination relies on charging different prices to different groups of consumers, regardless of how much demand changes in response to price changes.

In Order for Price Discrimination to Be Successful