Writing Homework Help

The idea that transactions in a marketplace work like an invisible hand is to some extent the idea that when a person chooses to buy an item at a given price, they are happy with the deal. There is no coercion. If the person really does not like the deal, they simply walk away.

This week’s discussion will give you an opportunity to explore direct and indirect price discrimination within the context of a hypothetical scenario.

Instructions

For this discussion, use the following hypothetical scenario as the basis for your response:

Your business partner is strongly opposed to your proposal to charge your largest customers lower prices for your web-based services than what you will charge your smaller customers. She is arguing it is unethical, unfair, and possibly illegal.

Address the following in your discussion post:

• Make a case that both groups of customers will be satisfied with the deal and that this is a perfectly legal form of pricing in a business-to-customer relationship.

What degree is this type of price discrimination?

How will the plan increase revenue?

• Why will both groups of customers be satisfied with the deal?

Why is this a legal form of pricing?

This is the student you need to respond to her name is Shannon

Price Discrimination in Online Sales

Some of the ways businesses increase their revenues is through price discrimination; companies adopt it intending to capture the market consumer surplus. Through it, a seller can optimize the revenue for a good or service. In web-based operations, it is easy to charge different prices to different clients. Technology and IoT give the business the power to set prices based on what clients can afford; rather than settling on a single price for all goods/ services, different prices are adopted based on consumers ability (Boik & Takahashi, 2020). There may be a feeling that the approach is unethical and unfair. But from a business standpoint, it may be the best shot to optimize revenue.

The price discrimination approach is ideal as prices are set based on the client’s classification and the market they are from. It works as long as the clients in different subgroups are ready and willing to offer different payments based on relative elasticities in the submarkets (Boik & Takahashi, 2020). Individuals in an inelastic submarket are likely to pay a higher price compared to in an elastic submarket. The customers in different submarkets will accept the deal as markets are separated by time, nature of use, and distance between them. Time, nature of service, and distance provide the required loopholes to avoid possible legal repercussions.

The price discrimination approach falls into the second-degree category. In this category, the price of goods or services depends on the quantity demanded. For the web-based service, charging lower prices to more significant consumers entails bulk sales; it is, therefore, legal and encourages more buying from clients (Lim et al., 2020). Bulk selling is ideal for increasing sales as customers are encouraged to buy more to take advantage of quantity discounts. More sales equate to more revenues.

As noted by Lim et al. (2020), bulk selling will ensure that both teams are satisfied with the deal as large-scale buyers get higher levels of savings. They also boast of convenience and financial leverage from the agreement. Lower volume consumers get the service packaged in quantities that they can afford. The approach is legal as quantity is used to determine the price, unlike third-degree discrimination, where individual data sets the price.

References

Boik, A., & Takahashi, H. (2020). Fighting bundles: The effects of competition on second-degree price discrimination. American Economic Journal: Microeconomics, 12(1), 156–187. https://doi.org/10.1257/mic.20180303

Lim, L. G., Tuli, K. R., & Grewal, R. (2020). Customer satisfaction and its impact on the future costs of selling. Journal of Marketing, 84(4), 23–44. https://doi.org/10.1177/0022242920923307