DECA+ Business Management and Administration Practice Exam

What is price discrimination?

1. Charging similar prices for different products

2. Charging customers different prices for similar goods

3. Standardizing prices across different markets

4. Offering bulk discounts

The correct answer is: Charging customers different prices for similar goods

Price discrimination refers to the practice of charging different prices to different customers for the same or similar goods or services, based on various factors like willingness to pay, purchase timing, or quantity purchased. This strategy allows businesses to maximize revenue by capturing consumer surplus; that is, the difference between what consumers are willing to pay and what they actually pay. The correct choice correctly identifies that it involves varying the price for similar items depending on the customer segment rather than the product itself. Price discrimination can be seen in many contexts, such as airlines charging different fares for the same flight based on how far in advance tickets are purchased or whether one is a business or leisure traveler. In contrast, other options refer to pricing strategies that do not reflect the essence of price discrimination. Charging similar prices for different products indicates uniform pricing for different offerings, which lacks the nuance of targeting individual customer segments. Standardizing prices across various markets means setting the same price for all customers regardless of specific circumstances, which doesn't accommodate the variability that price discrimination entails. Offering bulk discounts is related to pricing strategies designed to incentivize larger purchases but doesn't fit the definition of charging distinct prices for similar goods based on different customers' characteristics.