Price Discrimination

[Hanuman]

2 question on Price descrimination:

For effective price discrimination:

“seller should have more than one identifiable group with price elasticity of demand” CFAI. Should this price elasticity be different for different group?

and why does reselling the product affect the price elasticity of demand?

Thanks

[S2000magician]

Reselling doesn’t affect the price elasticity of demand; it affects your ability to exploit it.

Suppose that you have two groups of customers: low price elasticity of demand (LPED) and high price elasticity of demand (HPED). The LPED customers will pay $100 for your product while the HPED customers will pay only $60 for your product. If there’s no prohibition against reselling, then the HPED customers will pay $60 for your product and sell it to the LPED customers for $70. You’ve lost $40 in revenue from each LPED sale.

[Hanuman]

@S2000magician

Reselling doesn’t affect the price elasticity of demand; it affects your ability to exploit it.

Suppose that you have two groups of customers: low price elasticity of demand (LPED) and high price elasticity of demand (HPED). The LPED customers will pay $100 for your product while the HPED customers will pay only $60 for your product. If there’s no prohibition against reselling, then the HPED customers will pay $60 for your product and sell it to the LPED customers for $70. You’ve lost $40 in revenue from each LPED sale.

Thanks for the reply…So for price discrimination to be effective the Price elasticity of groups should be different w/o the ability to resell the product.

[S2000magician]

Yup.