Competition and price discrimination
Price and non-price competition
- price competition — cutting prices to win customers.
- non-price competition — competing by advertising, quality, branding and service.
Practice
Which is an example of non-price competition?
Non-price competition uses advertising, quality, branding and service rather than price.
Price discrimination
- Price discrimination = charging different consumers different prices for the same good (e.g. cheaper train tickets for students).
- It needs:
- price-setting power,
- groups with different elasticities,
- a way to stop resale between groups.
- It raises the firm's profit.
Practice
Price discrimination is charging:
It charges different prices (e.g. student vs adult fares) for the same good to raise profit.
Practice
Price discrimination needs which conditions? (Choose all that apply.)
It needs price-setting power, different elasticities between groups, and no resale.
You've got it
Key idea
- price competition (cut prices) vs non-price (advertising, quality, branding)
- price discrimination = different prices, same good, to raise profit
- it needs price-setting power, different elasticities, and no resale