Question

2. Many computer manufacturers sell the same computer at different prices based on whether the buyer is from a school or a business. a. What type of price discrimination is being used? Briefly explain how it fits the definition of that type of strategy. b. Which group do you think will pay the higher price? You should briefly say why you think they might have different elasticities and use your knowledge of price markups to inform your answer.

Answer 1

2)a) Price discrimination which the computer sellers use to sell units to businesses and schools is type of third degree price discrimination. In this type of discrimination, the seller can identify and segregate different groups, selling goods at different prices.

b) The business would pay higher price because they are less sensitive to price than schools. Schools have limited budgets, lesser than businesses, which makes them more price sensitive than businesses. They have higher elasticities than businesses. Business has lesser elasticity ie a small change in price would not change the quantity demanded while in schools that might happen.

For businesses the markup would be higher as the demand is inelastic while for schools markup would be lower.