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MB0042:1. What is Price Discrimination? Explain the basis of Price Discrimination.

May 10, 2011 By: Meliza Category: Uncategorized

The policy of price discrimination refers to the practice of a seller to charge different prices for different customers for the same commodity, produced under a single control without corresponding differences in cost.

Price Discrimination May Take The Following Forms: (Basis Of Price Discrimination)

1. Personal differences: This is nothing but charging different prices for the same commodity because of personal differences arising out of ignorance and irrationality of consumers, preferences, prejudices and needs.

2. Place: Markets may be divided on the basis of entry barriers, for e.g. price of goods will be high in the place where taxes are imposed. Price will be low in the place where there are no taxes or low taxes.

3. Different uses of the same commodity: When a particular commodity or service is meant for different purposes, different rates may be charged depending upon the nature of consumption. For e.g. different rates may be charged for the consumption of electricity for lighting, heating and productive purposes in industry and agriculture.

4. Time: Special concessions or rebates may be given during festival seasons or on important occasions.

5. Distance: Railway companies and other transporters, for e.g., charge lower rates per KM if the distance is long and higher rates if the distance is short.

6. Special orders: When the goods are made to order it is easy to charge different prices to different customers. In this case, particular consumer will not know the price charged by the firm for other consumers.

7. Nature of the product: Prices charged also depends on nature of products e.g., railway department charge higher prices for carrying coal and luxuries and less prices for cotton, necessaries of life etc.

8. Quantity of purchase: When customers buy large quantities, discount will be allowed by the sellers. When small quantities are purchased, discount may not be offered.

9. Geographical area: Business enterprises may charge different prices at the national and international markets. For example, dumping

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