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In a monopolistic economy, marketers might decide to charge different customers different prices for the same product. This is what Boyes and Melvin (2011) refers to price discrimination in a situation where market power can be exercised. He further argues that price discrimination occurs when price changes result not from costs changes, but from the firm’s attempt to extract more of the consumer’s surplus. For such to happen, there are various conditions, including: The firm must be a monopoly hence no perfect competition, the firm must be able to separate customers according to price elasticity of demand and lastly the firm must be able to prevent the resale of the product by the consumer who get it at a lower price to those in the segment that buys at a higher cost. Generally, price discrimination occurs when the firm is not a price taker, can separate customers according to the price elasticity of demand and then prevent the resale of the product.
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Retailers use market segmentation as the best practice to achieve price discrimination. In this case, retailers segment markets as per the perceived wealth distance from each customer. They then set prices depending on the type of segments they have selected. They also try to limit price information to those in the segments where prices are high and to achieve that they use different media platforms to market the products. However, it is challenging to have this price discrimination work fully. Some retailers have been avoided by consumers due to price decimation. Air line industry is the one that uses price discrimination, but it has faced challenges. Many travelers nowadays are for cheaper rates due to the economic crisis that is forcing everybody to minimize on costs.
With the new technology, it is difficult to hide information such as price from other consumers. In social media like facebook and twitter, people have created pages where they can discuss prices and such include consumer watch where product information is availed and any discrimination is condemned. People are also using technology to find products where prices are low and this is headache to retailers. They have realized that differentiating prices has made where goods are expensive to remain in their stores hence making loses through damages.
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