Practice Problems

1. Each person checking into a hotel in Russia is required to show proof of citizenship. The price for the room is set after the hotel knows what country a person comes from.

a. How can this practice be explained in terms of price discrimination?

b. Which type of price discrimination does this example illustrate?

2. a. List the conditions necessary for third-degree price discrimination.

b. It has been noticed that price discrimination is more common in the sale of services rather than in the sale of goods. Why? (Use your answer to part a as a reference. Which of the necessary conditions for PD listed there is more likely to hold for services than for goods?)

3. Suppose you enter the store and see a sign on top of a shirt rack saying "Buy one, get second at 50% off".

a. Which type (degree) of price discrimination does this example represent?

b. Why does it make sense for the stores to price discriminate instead of charging the same price for each unit?

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