What are the Advantage and disadvantage of price discrimination?

Answer 1

Advantages of Price Discrimination

1. Firm will be able to increase revenue. This may enable some firms to stay in

business who may have otherwise have made a loss. E.g. train companies need

price discrimination to offer off peak travel

2. Increased revenue can be used for Research and Development

3. Some Consumers will benefit from lower fares. E.G. old people can take

advantage of cheaper fares on trains.

Disadvantages of Price Discrimination

1. Some Consumers will face higher prices, leading to allocative inefficient

and a loss of consumer surplus.

2. Often those who benefit from lower prices may not be the poorest. For

example some old people may be quite rich, but unemployed will have to

pay the full adult fare.

3. There may be administration costs involved in separating the markets

Answer 2

Price discrimination is the practice of charging different prices to different groups for the same item. Some advantages of price discrimination are that companies can increase profits and the some people will get lower prices. Some disadvantages are that some will end up paying higher prices and that there could be increased costs in order to separate the markets.