State whether the two fundamental conditions given below for Price Discrimination to become possible are correct or incorrect:
Condition (I): The unit of the products can't be transferred from one market to another.
Condition (II): The buyers in the dearer market can't transfer themselves into the cheaper market to buy the product.
In light of the above statements, choose the most appropriate answer from the options given below:
Condition (I): The unit of the products can't be transferred from one market to another.
Condition (II): The buyers in the dearer market can't transfer themselves into the cheaper market to buy the product. In light of the above statements, choose the most appropriate answer from the options given below:
Show Hint
- Both Condition (I) and Condition (II) are correct.
- Both Condition (I) and Condition (II) are incorrect.
- Condition (I) is correct but Condition (II) is incorrect.
- Condition (I) is incorrect but Condition (II) is correct.
The Correct Option is A
Solution and Explanation
- Condition (I) is correct: The product units must not be transferable between markets (preventing arbitrage). If products can be bought in a cheaper market and resold in a dearer one, the price difference cannot be sustained. For example, digital products with region-specific licenses or non-transferable tickets meet this condition.
- Condition (II) is correct: Buyers in the dearer market must not be able to access the cheaper market to purchase the product. This requires market segmentation, such as through geographic, demographic, or contractual barriers (e.g., student discounts unavailable to non-students). If buyers can easily switch markets, the seller cannot maintain higher prices in the dearer market.
Both conditions ensure market separation, making price discrimination viable. Thus, option (1) is correct.
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