Course work (see uploaded file) Essay Example | Topics and Well Written Essays - 2000 words

Course work (see uploaded file) - Essay Example In this vein, a firm might use price discrimination to increase sales. Secondly, a firm might use price discrimination to prevent other competitors from capturing the market, for example, a UK business might want to lower prices in a town where cheap Chinese competitors are trying to penetrate. CONDITIONS FOR PRICE DISCRIMINATION For price discrimination to be successful, there are two main conditions that must exist in the market (Tutor2u). First of all, there must be differences in price elasticity of demands between the different markets within which a firm operates. This means that the firm can increase the price of a given product where the demand is inelastic because customers will buy anyway. However, where demand is elastic, prices need to be kept low because it can lead to buyers refusing to buy and the firm will run at a loss. The second condition necessary for price discrimination is that there should be barriers that prevent consumers from switching from one supplier to a nother. This is because when consumers have options, they are likely to switch to other brands or substitutes when prices fluctuate in a way they find unfavourable. Price discrimination could be beneficial or detrimental to consumers. It could be beneficial when the prices are reduced or promotions are run. However, there are some price discrimination drives that exploit consumers. ... Another example is the fact that some professional groups like Chartered Institute of Marketers charge different prices for students and different prices for members although they can access about the same privileges. Second degree price discrimination occurs when prices are varied based on quantities of goods purchased by a consumer (Fisher & Waschik, 2002). An example is a situation where a person gets a discount for buying a certain quantity of goods. Another example is where businesses run promotions where people are given extra units of a product when they buy a given quantity of the product. Third degree price discrimination is where a producer segments the market and varies prices because of distance, cost of production in zones or customers’ identity (Fisher & Waschik, 2002). An example is where a factory based in London charges clients in New York more. Another example could be the situation where university students from some countries are charged higher fees. CASE S TUDIES When Tesco sells Digestive biscuits at ?2.10 per pack, but also have a ‘3 for the price of 2’ offer, there is a second degree price discrimination. The rationale for this is that Tesco wants to increase sales and with a large volume of biscuits sold, they will get a large volume of profits which will be collectively higher than the profits they would have gained by selling a smaller quantity of biscuits at ?2.10 per pack. Also, the profits will come in faster and they can use the revenue for other business activities. In a situation where the return train fare from Birmingham to London is ?35 at 11am, but is ?200 at 8am, it can be concluded that the managers are utilising the principles of the elasticity of demand here. This is because at 8am, there is a high number of people ready