Question

1. Describe the different price strategies. Discuss when a firm would employ first, second, or third-degree price discrimination. Provide an example of a first degree, second degree, third degree, and an advanced pricing strategy. Also talk about the pros and cons to different pricing strategies (for example complex, hard to implement, amount of producer surplus generated).

PLEASE BE DETAILED AND PROVIDE CLEAR EXAMPLES. THANK YOU!

Answer 1

answer-

Different types of pricing strategies are Skimming pricing in which a company charge high price on goods or services then gradually lower its price when demand is declining. the pro os this stratgy is that Company can gain huge profit at starting stage of product launch. The con of this strategy is that Company face short life cycle of such products.

Premium pricing strategy in which Company charge very high price on goods and services. For example- Audi cars, Iphones, Rolex watches etc. The pro of this stratgey is that It shows status and increase brand value of the company. The con is that customer market is not loyal and huge for such brands.

Market penetration pricing in which company wants to penetrate the market by offering low price on its goods and services like Xiaomi inc. The pro of this stratgey is that Company can become market leader and it is easy to implement. the con of this stratgey is that Company may face shortage of funds due to charging low price.

There is other pricing strategy which is price discrimination strategy in which a Company charge different pricing for same products or services to different consumers.

With first-degree discrimination, the company charges the maximum possible price for each unit consumed. This type of pricing strategy takes place when businesses can accurately determine what each customer is willing to pay for a specific product or service and selling that good or service for that exact price.

example- Drug-makers charge more for drugs in wealthier countries. or airline industry charges high prices at peak season.

Second-degree discrimination involves discounts for products or services bought in bulk.This is best when company want to stock out its inventory and attract more customers.

Example of this like Sam's Club or Costco (COST) or industrial customers who would buy industrial goods at bulk for production.

third-degree discrimination reflects different prices for different consumer groups Companies can understand the broad characteristics of consumers more easily than the buying preferences of individual buyers.

for example- A gold version of Iphone is targeted and sold to customers who are billionnairs like ambani, Bill gates etc.

exclusive model of audi car or rolex watch to high profile customers.