Flip It Price Discrimination Notes - u25cf u25cf u25cf...

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Being able to charge each buyer a different price based on their willingness to pay allows you to earn a much higher profit Price Discrimination - the practice of charging different prices to different consumers for the same good In order for firms to price discriminate, three important criteria must be met First, the firm must have some market power and hence some control over pricing Second, it must prevent buyers from reselling the good to each other Finally, the firm must be able to identify buyers according to their willingness to pay One way a firm can find out how much a buyer is willing to pay is to negotiate a different price with each buyer For example, you can advertise the price of a car at $30,000, but negotiate a reduced price for each individual buyer Perfect Price Discrimination - assuming that you are able to negotiate a final price exactly equal to each buyer’s willingness to pay

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