Question

Suppose a monopoly is able to prevent resale of its good in secondary markets. However, it is unable to distinguish one consumer type from another consumer type (e.g., residents and non-residents) and it does not negotiate with individual consumers. Given this information, which of the following discriminatory pricing strategies would it most likely employ?

1) perfect (or first degree) price discrimination
2) block pricing (or second degree) price discrimination
3) multi-market (or third degree) price discrimination
4) buyer-option (or fourth degree) price discrimination
5) seller-bluff (or fifth degree) price discrimination

Answer 1

The monopoly would most likely employ multi-market (or third degree) price discrimination.

Step-by-step explanation:

The monopoly in this scenario would most likely employ multi-market (or third degree) price discrimination.

Multi-market price discrimination involves the monopolist charging different prices to different consumer groups based on their willingness to pay. Since the monopoly is unable to distinguish one consumer type from another, it can divide consumers into groups based on observable characteristics, such as their geographical location. This allows the monopoly to charge different prices in different markets without negotiating with individual consumers.

By employing multi-market price discrimination, the monopoly can maximize its profits by charging the highest possible price to each consumer group without the need for individual negotiations or being able to distinguish between consumer types.