Asked by Mario Golden on May 18, 2024
Verified
The conditions in which vertical relationships can enhance a firm's ability to price discriminate include
A) the manufacturer's product is of value to just one type of customer
B) the costs of arbitraging the price difference across markets is small
C) the manufacturer acquires the distributer in the higher priced market
D) competition provides little ability for the manufacturer to price above marginal cost
Arbitraging
The practice of buying and selling assets in different markets or forms to profit from price discrepancies.
Price Discriminate
A pricing strategy where a seller charges different prices for the same product or service to different customers, based on various factors like willingness to pay, location, or purchase history.
Vertical Relationships
The connections between firms at different levels in the production chain, such as suppliers, manufacturers, and retailers, often focusing on the flow of goods and services.
- Learn about the strategies utilized by manufacturers to execute price discrimination.
Verified Answer
TL
Taylor LeighMay 19, 2024
Final Answer :
B
Explanation :
Vertical relationships can enhance a firm's ability to price discriminate when the costs of arbitraging the price difference across markets is small, meaning that it is difficult for customers to buy the product in one market and resell it in another market. This allows the manufacturer to charge different prices in different markets without the risk of arbitrage, allowing for effective price discrimination. The other choices do not necessarily apply to all situations in which vertical relationships can enhance a firm's ability to price discriminate.
Learning Objectives
- Learn about the strategies utilized by manufacturers to execute price discrimination.