Price discrimination tends to be more common in the sale of services than in the sale of
manufactured goods. Explain why.
The basis condition that is to be fulfilled for the price discrimination is that there must not be any possibility of resale among the sellers of two markets. It is for that reason a doctor can charge two different fees to two patients. Thus possibility of resale is limited in case services than the manufactured products. So price discrimination is more common in case services than in case of manufactured products
Price discrimination tends to be more common in the sale of services than in the sale of manufactured goods due to several reasons.
Firstly, price discrimination relies on the ability to segment customers into different groups with varying willingness to pay. Services often have a wider range of customization and flexibility compared to manufactured goods. This allows service providers to cater to different customer needs and preferences, thereby justifying the price differentials. For example, a luxury spa may offer different packages and pricing based on the level of pampering and amenities provided, targeting customers with different budgets and demands.
Secondly, services are often more difficult to compare and evaluate than manufactured goods. Customers have varying expectations and perceptions of service quality, making it challenging to establish objective benchmarks. This lack of standardized evaluation allows service providers more leeway in implementing price discrimination strategies. For instance, a professional consultant or a lawyer may charge different rates depending on the complexity of the case or the perceived value they bring to the client.
Additionally, services are often characterized by perishability and time constraints. Unlike manufactured goods, which can be stockpiled and sold later, services are typically consumed immediately when provided. This time-sensitive nature creates opportunities for price discrimination since service providers can charge different prices for peak and off-peak hours or different days of the week. For example, airlines often charge higher fares during peak travel seasons or on weekends, while offering lower prices during less popular periods.
Furthermore, the resale of services is generally more challenging than the resale of manufactured goods. Services are typically consumed by the customer themselves and cannot be easily transferred or resold to others. This limited resale potential reduces the risk of arbitrage and makes it easier for service providers to implement price discrimination strategies. For example, a concert promoter may offer discounted tickets to students or seniors, knowing that these tickets are less likely to be resold at a higher price.
In conclusion, price discrimination is more common in the sale of services compared to manufactured goods due to the ability to segment customers, the subjective nature of service evaluation, the perishability and time constraints of services, as well as the limited resale potential. These factors create an environment where service providers can effectively implement different pricing strategies to maximize revenue based on customer segmentation and demand.