Final answer:
True, for successful price discrimination, a firm must have market power and be able to prevent resale (arbitrage), enabling it to charge different prices to different consumers without losing sales to competitors, thereby maximizing profits.
Step-by-step explanation:
True, in order for a firm to maximize profits through price discrimination, the firm must have some market power and be able to prevent arbitrage. Market power allows the firm to set different prices for different consumers or groups without them turning to competitors. To prevent arbitrage, firms have to ensure that those who purchase goods or services at a lower price are not able to resell them to those facing a higher price, since this would undermine the price discrimination strategy.
A scenario of perfect price discrimination describes a situation where a firm charges each consumer the maximum they are willing to pay, thus there is no consumer surplus, with the firm capturing the entire potential surplus as profit. In contrast, perfect competition would not allow a single firm to increase prices for higher profit due to the high level of competition and the fact that firms are price takers.