Factors Necessary for the Implementation of Price Discrimination - Assignment Example

Question one Price discrimination is a situation where a business charges a different price for different/various groups of the consumers for the same products or services for non-costs related reasons. The point here is charging different price for similar goods and services. Therefore, it is not pure price discrimination. Product differentiation offers greater control over the price. The supplier has the potential to charge the consumer a price because of actual or possible differences in performance or quality of the goods (International Symposium, P.12) Factors necessary for the implementation of price discrimination Firstly, there should be differences in price elasticity of demand. For each group of consumer, there must be a different price elasticity of demand. The supplier can then charge a higher price if a group has a more price inelastic demand. Similarly, a firm will charge a lower price if the group of consumer has a more elastic demand. Through implementation of this strategy, the firm increases the total revenue and profits thereby achieving a higher produce surplus level. To profit maxims, setting marginal revenue that is equal to marginal cost in each separate market is required (International Symposium, P.22) Secondly, there should be barriers preventing consumer switch from one supplier to another. The firm should can restrict users from switching from one firm to another (consumer switching). Consumer switching is a process where consumers of goods purchase it at a lower price and then re-sell to other consumers who might pay a higher price. The implementation occur in various ways and easily achieved in unique services such as the dental treatment, haircut or consultation with a doctor than with the exchange of tangible goods, for instance, a meal with the wine in a restraint. Consumer switch can be averted by selling to the customers’ products at unique moments in time, for example, using airline tickets that cannot be sold under any circumstance because they are unique for a flight. Similarly, railways tickets have are limited to specific rail services. This limits the consumer from re-selling the tickets to another customer for any reason whatsoever. In another case, software business such as Microsoft offers massive discounts for educational users of their products. Office 2007 was sold at a 90% price discount for students in 2009 summer (International Symposium, P.17). However, the purchaser had to prove they were students. Finally, the firm must identify different market segments. This involves determining the possible consumer of the products that are to be sold. The market segments are diverse therefore; identification will help successfully implement price discrimination strategies. The users, for instance, can be domestic or industrial users. The firm has to possess some degree of monopoly power to control the market such as Microsoft business. Examples of price discrimination include perfect price discrimination where a company charges whatever the market will bear. The second-degree price discrimination that involves selling blocks or packages of goods seen to be surplus capacity at a cheaper price compared to previously advertised or established price. Example is the selling of the spare rooms in the hotel industry in the last minute standby basis. Others examples include, early –bird discounts-extra cash flow, peak, and off- peak pricing and third degree price marketing (most common). Question two Implications of uncertainty for markets Economic uncertainty affects micro and macroeconomics quantities and assets prices. Uncertainty implies to activities whose probability cannot be achieved with relative frequencies. Most of the economies are sluggish because of the uncertainty in terms of market environment. This affects decision-making that would others see the business and economy of a society to prosper. Uncertainty can be grouped into two classes that are ‘bad’ uncertainty and ‘good’ uncertainty. The bad uncertainty volatility associated with negative innovations to quantities such as output, consumption and earning that leads to lower pricing and investment. On the contrary, ‘good’ uncertainty is volatility associated with positive outcomes of the variables, and it results in higher pricing and investment (International Symposium, P.53) The managers of organizations and firms are hesitant to make decisions mainly because of the consequences of such decisions. It is however evident that the uncertainty plays a significant role in the economy-based decisions. For instant, innovation of World Wide Web was deemed to produce positive growth opportunities and lead to economic growth however; it was unknown how much of the benefit it had. This can be grouped as a ‘good’ uncertainty. The fall of the Lehman brothers amid the global financial crises in 20008 led to deteriorating outcomes still the extent to which the loss was to be was unknown. The direct impact of both uncertainty shocks is to minimize or reduce prices. For the price to rise in relation to good uncertainty shock there is a link between future growth prospective and good uncertainty. The bad uncertainty negatively forecast future economic activity. The good uncertainty enhances asset valuations and real risk-free rate. Economic uncertainty is linked with priced risk. The implications of the uncertainty affect the decisions made concerning outcomes of the economic environment. The managers face uncertainty in terms of policies, the market of choice and investments of the firm they control. Theories related to uncertainty The post-Keynes theory shows that in an uncertain world, economic agents prefer to retain capital instead of investment decisions. The consequences of this preference are insufficiency of actual demand. In the theory, uncertainty is part of economy process vision. The primary legacy consists showing logic of the monetary economy. In such cases, fluctuations in effective demand occur because the world future is uncertain therefore; individuals prefer to retain their money, postponing consumption and investment decisions. According to Keynes, money differs from other assets in terms of its elasticity of production that is zero and the substitution elasticity of money is zero. The concept affects managers in decision-making. These properties of money are central to the monetary economy. Because of the uncertainty, individuals such as investors follow their intuitions and instincts in making decisions (International Symposium, P.79). In institutionalism theory, the institutional environment is culturally conditioned and can be subjected to permanent alterations. The old institutionalism focuses on the importance of institutions and needs to have evolutionary economics. The theory also incorporates an aspect of uncertainty in the economic process. Institutionalism is concerned with complex organization of the system rather than the market. It focuses on the distribution of power in society, knowledge of the formation; the way market operates and allocation of resources. All this principles affect decision-making, and it leads to uncertainty (Ura et al., p.32) Question three Technological advances in almost all sectors have made everything convenient and accessible. The advances in technology have overwhelming importance. However, some disadvantages accompany the rapid technological advances in the modern world. Advantages of technological advances Technological advances have created huge discoveries in all industries enabling people to do things more efficiently and obtain great results. The use of computers in education has led to E-learning that has seen large success and has made education accessible to many at affordable costs. There are medical discoveries that have made diagnosis and treatment diseases become extremely easy. In the business world, marketing has been achieved through online strategies; investors can get more information about the market and even carry out financial tractions online (International Symposium, P.27) Technology improves the processes that exist and displays new ways to accomplish the tasks. The machines can yield even more output than what humans would produce. This results in cost-effective in business allowing more investment and growth of the business that ultimately influences positively to the economy. The technological advances and automation has improved communication. This includes mobile phones, video conferencing, instant messages applications among a myriad of others. Information is regarded as the power. The technologies advances have led to easy access of information regard all information. Social networking has helped people to link up and discover new people to link up with. Technology has also associated with improved modes of entertainment Downsides of the rapid advancement of technology and automation The more advanced world becomes technological, the more the dependency on computers and other forms of technology. This implies that in case of machines breakdown, or computers crash, the people became stuck and almost disabled until the problem is fixed. The dependency is grave and makes people almost robots. The technology is less reliable; hence, the major disadvantage it has. The human value in some production industries become less because the much regard is given to the modern technology. For instance, a computer can be automated to perform a task that otherwise many people would perform. This limits the job opportunities for humans as much work is accomplished by the technology. People are lonelier as they spend most of their time in learning how to use the new machines. The others are stuck in some applications that are interesting with the new technology (Ura et al., p.75). The major disadvantage of technology advance can be related to the development of destructive weapons. I disagree largely that technology destroys jobs. Even though there are technological advances, they cannot completely replace humans. There are humans who are required to run such machines even though the number of the people working in an organization will be lowered. Advances in technology make people creative; hence, they can create their jobs using the technology available. I also disagree that technology lack of government will result in economic crises. The invention of the technology has led to the establishment of regulations that are aimed at improving the economy. The economic advances witness now is attributed to technological advances. Works cited International Symposium, Isaebd 2011, Dalian, China, August 6-7, 2011: Proceedings. Berlin: Springer, 2011. Print. Ura, Dasho K, and de P. P. Ordóñez. Advancing Technologies for Asian Business and Economics: Information Management Developments. Hershey, PA: Information Science Reference, 2012. Print. Read More