why there is an assumption "there must not be a resale between two markets" for price discrimination
"There must not be aresale between the two markets"-is not an assumption under price discrimination but apre-condition for price discrimination. If there there remains a possibility of resale then price discrimination does not take place
The assumption that there should not be resale between two markets is indeed a key condition for price discrimination to occur. This assumption is necessary because if resale is possible, it would undermine the ability of the seller to charge different prices in different markets.
When a seller practices price discrimination, they aim to sell the same product or service to different groups of consumers at different prices based on their willingness to pay. This requires the seller to segment the market and charge higher prices to consumers who have a higher willingness to pay and lower prices to consumers with a lower willingness to pay.
However, if there is a possibility of resale between the markets, consumers who purchased at a lower price in one market could resell the product to consumers in the higher-priced market. This would result in equalizing prices between the two markets, making it difficult for the seller to charge different prices and render price discrimination ineffective.
To prevent resale, sellers may use various strategies such as:
1. Geographical separation: The seller may physically separate the two markets by selling in different regions or countries, making it harder for consumers to resell the product from one market to another.
2. Product differentiation: The seller may differentiate the product in some way to make it difficult or undesirable for consumers to resell it. This could include creating unique features, packaging, or branding that are specific to each market.
3. Contracts or restrictions: The seller may enforce contracts or impose restrictions on the buyers, explicitly prohibiting resale or limiting the conditions in which resale is allowed.
By ensuring that there is no possibility of or limited resale between the markets, the seller can effectively implement price discrimination and maximize their profits by extracting different amounts of surplus from different consumer groups.