What are the three basic conditions necessary for price discrimination?
A firm engages in price discrimination when it charges different prices to distinct customers based upon variances in willingness to pay. There are three basic conditions that must exist in markets for effective price discrimination to exist:
• Firms must have market power, or the ability to set their own price.
• The product cannot be easily resold. A firm can only sell its product at different prices to two distinct groups of consumers if the product cannot be easily resold.
• There must be differences between markets in willingness to pay. A firm can only charge different prices to distinct groups of consumers if the groups vary in their willingness to pay and the firm's sales force can identify those variations.
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a. True b. False
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