ExpertMedium2 marksMultiple Choice
ACCA · Question 08 · Decision-making techniques
Section A
OmniStream, a cross-border digital streaming multinational, charges different monthly subscription fees in different countries for the exact same service.
Which TWO of the following conditions must exist for OmniStream's price discrimination strategy to be effective and profitable?
Section A
OmniStream, a cross-border digital streaming multinational, charges different monthly subscription fees in different countries for the exact same service.
Which TWO of the following conditions must exist for OmniStream's price discrimination strategy to be effective and profitable?
Answer options:
A.
The markets must be separable, preventing customers in high-price markets from buying in low-price markets.
B.
The company must have a monopoly in all the markets it operates in.
C.
There must be different price elasticities of demand in the different markets.
D.
The cost of providing the service must be significantly different in each country.
How to approach this question
Identify the fundamental economic conditions required for price discrimination.
Full Answer
For price discrimination to work, the seller must be able to separate the markets to prevent arbitrage (Option A). Furthermore, the strategy is only profitable if consumers in different markets react differently to price changes, meaning they have different price elasticities of demand (Option C).
Common mistakes
Selecting D, assuming costs must be different. Price discrimination specifically refers to price differences that are *not* based on cost differences.
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