Question:
State whether the two fundamental conditions given below for Price Discrimination to become possible are correct or incorrect:
Condition (I): The unit of the products can't be transferred from one market to another.
Condition (II): The buyers in the dearer market can't transfer themselves into the cheaper market to buy the product.
In light of the above statements, choose the most appropriate answer from the options given below:
State whether the two fundamental conditions given below for Price Discrimination to become possible are correct or incorrect:
Condition (I): The unit of the products can't be transferred from one market to another.
Condition (II): The buyers in the dearer market can't transfer themselves into the cheaper market to buy the product. In light of the above statements, choose the most appropriate answer from the options given below:
Condition (I): The unit of the products can't be transferred from one market to another.
Condition (II): The buyers in the dearer market can't transfer themselves into the cheaper market to buy the product. In light of the above statements, choose the most appropriate answer from the options given below:
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Price discrimination needs non-transferable products and segmented buyers to prevent arbitrage and market switching.
Updated On: Jul 2, 2026
- Both Condition (I) and Condition (II) are correct.
- Both Condition (I) and Condition (II) are incorrect.
- Condition (I) is correct but Condition (II) is incorrect.
- Condition (I) is incorrect but Condition (II) is correct.
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The Correct Option is A
Approach Solution - 1
Price discrimination occurs when a seller charges different prices for the same product in different markets to maximize profits. For this to be effective, two fundamental conditions must hold:
- Condition (I) is correct: The product units must not be transferable between markets (preventing arbitrage). If products can be bought in a cheaper market and resold in a dearer one, the price difference cannot be sustained. For example, digital products with region-specific licenses or non-transferable tickets meet this condition.
- Condition (II) is correct: Buyers in the dearer market must not be able to access the cheaper market to purchase the product. This requires market segmentation, such as through geographic, demographic, or contractual barriers (e.g., student discounts unavailable to non-students). If buyers can easily switch markets, the seller cannot maintain higher prices in the dearer market.
Both conditions ensure market separation, making price discrimination viable. Thus, option (1) is correct.
- Condition (I) is correct: The product units must not be transferable between markets (preventing arbitrage). If products can be bought in a cheaper market and resold in a dearer one, the price difference cannot be sustained. For example, digital products with region-specific licenses or non-transferable tickets meet this condition.
- Condition (II) is correct: Buyers in the dearer market must not be able to access the cheaper market to purchase the product. This requires market segmentation, such as through geographic, demographic, or contractual barriers (e.g., student discounts unavailable to non-students). If buyers can easily switch markets, the seller cannot maintain higher prices in the dearer market.
Both conditions ensure market separation, making price discrimination viable. Thus, option (1) is correct.
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Approach Solution -2
Arbitrage-prevention test:
Price discrimination can only survive if arbitrage is blocked from both the supply side and the demand side. Condition (I) blocks arbitrage from the supply side, since a reseller cannot move units bought cheaply in one market into the dearer market to undercut the seller there. Condition (II) blocks arbitrage from the demand side, since a buyer in the costlier market cannot simply access the cheaper market to buy directly. Because effective price discrimination requires both channels of arbitrage to be closed simultaneously, both Condition (I) and Condition (II) are correct, confirming option (1).
Price discrimination can only survive if arbitrage is blocked from both the supply side and the demand side. Condition (I) blocks arbitrage from the supply side, since a reseller cannot move units bought cheaply in one market into the dearer market to undercut the seller there. Condition (II) blocks arbitrage from the demand side, since a buyer in the costlier market cannot simply access the cheaper market to buy directly. Because effective price discrimination requires both channels of arbitrage to be closed simultaneously, both Condition (I) and Condition (II) are correct, confirming option (1).
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