Transactions in a marketplace
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.
Also see the help provided in the discussion preparation.
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 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?
Use evidence from your textbook or other reputable sources, including any help in the discussion preparation, to support your case to your business partner.
The degree of price discrimination this plan would entail could be considered third-degree price discrimination since it would involve charging different rates based on buyer characteristics (in this case size). This type of pricing strategy allows businesses to differentiate between buyers who are willing/able to pay more for their goods and those who might need or want discounts due to economic constraints which results in increased revenue overall.
Both groups will be satisfied with the deal because it offers advantages that each one needs: large clients benefit from reduced costs while small ones get access to goods/services at an affordable price point. This type of pricing strategy also benefits business owners by increasing profits through minimizing wastage and maximizing sales volumes, providing them with greater financial stability and ultimately helping them invest back into their operations or other projects.
Finally, this is a legal form of pricing so long as businesses don’t engage in anti-competitive practices such as collusion with competitors or engaging in predatory behaviour against certain customer groups which could lead to fines being imposed by regulators. As long as all parties are aware of what types of discounts they’re receiving and why, then there should not be any legal issues related to implementing such a pricing scheme.