price discrimination

I thought price discrimination works in Monopoly type of business . So “high barrier’s to entry” should be correct. right? ---------------------------------------- For price discrimination to work, the seller must face a market with all of the following characteristics EXCEPT: A) a downward sloping demand curve. B) high barriers to entry. C) two or more identifiable groups of customers with different price elasticities of demand for the product. D) a way of preventing customers from purchasing the product at a lower price and reselling it at a higher price. Your answer: A was incorrect. The correct answer was B) high barriers to entry. Price discrimination is the practice of charging different consumers different prices for the same product or service. For price discrimination to work the seller must: 1) have a downward sloping demand curve, 2) have at least two identifiable groups of customers with different price elasticities of demand, 3) must be able to prevent customers in the lower-price group from reselling the product to customers in the higher-price group.

The airline industry, which regularly practices price discrimination, is not a monopoly.

your confusing 2 different subjects. Monopolies profit by producing where mr =mc. A movie theather in the other hand is not a monopoly type business and it sell tickets at different prices for diff times. hopefully this helps

Appreciate for replies. I understood better. I am curious why they gave “a downward sloping demand curve.” I thought demand curve is always downward sloping. Is there any reason to specify this redundant statement?

the alternative is horizontal demand curve which is the case in perfect comp.

In economic theory, there are two theoretical goods that have an upward sloping demand curve: the Giffen Good and the Veblen Good. Giffen goods are cheap, staple goods for which a rise in price makes people want to buy more. The example I remember from class is bread. Bread is an important cheap good. A rise in the price of bread makes people eat less meat, cheese, milk, etc., in order to be able to buy more bread. The reason is because as the price of bread rises, it’s very likely that the prices of other foods are rising as well. Since bread is cheaper than other types of food products, people will buy less of the other foods in order to buy the cheaper (relatively, even though it’s now more expensive) good. A Veblen good is a luxury good which people purchase because of its high price and exulted status. Examples are Rolls Royces, Mont Blanc pens, diamonds, those purses women buy, whatever. If the price of these goods goes down, then they lose their high-society status and demand will fall. I didn’t go into that much detail about these but I’m sure you can find more stuff online. I doubt you’ll be tested on these on the CFA, but it’s always good to know :slight_smile:

Kant, It is very much interesting to know about these types of goods. I never thought about them. Thanks a lot for your time. Chinni

Ah yes, the giffen good - way back to econ 251! Did I ever hate that stuff…