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.
Show Hint
The core requirement for price discrimination to persist is the complete absence of any form of market arbitrage (either product arbitrage or buyer arbitrage).
Updated On: Jul 13, 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
Solution and Explanation
Step 1: Understanding the Concept:
Price discrimination is the practice where a monopolist charges different prices to different buyers for the same product, or in different markets, for reasons unrelated to differences in cost.
Step 2: Detailed Explanation:
For price discrimination to be possible and profitable, three conditions must be satisfied:
1. The firm must possess monopoly power.
2. The firm must be able to segment the market based on different price elasticities of demand.
3. The firm must prevent resale (arbitrage).
Let us analyze the given conditions:
- Condition (I): The unit of the products can't be transferred from one market to another.
If a product could be easily transferred, arbitrageurs would buy the product in the cheaper market and resell it in the higher-priced (dearer) market.
This would drive prices down in the dearer market and up in the cheaper market until the price difference disappears.
Thus, preventing product transfer is necessary, making Condition (I) correct.
- Condition (II): The buyers in the dearer market can't transfer themselves into the cheaper market to buy the product.
If buyers in the higher-priced market could easily move to the cheaper market, they would simply purchase there.
The monopolist would then be unable to maintain different prices.
Thus, preventing buyer transfer is necessary, making Condition (II) correct.
Therefore, both conditions are correct.
Step 3: Final Answer:
Both Condition (I) and Condition (II) are correct.
Price discrimination is the practice where a monopolist charges different prices to different buyers for the same product, or in different markets, for reasons unrelated to differences in cost.
Step 2: Detailed Explanation:
For price discrimination to be possible and profitable, three conditions must be satisfied:
1. The firm must possess monopoly power.
2. The firm must be able to segment the market based on different price elasticities of demand.
3. The firm must prevent resale (arbitrage).
Let us analyze the given conditions:
- Condition (I): The unit of the products can't be transferred from one market to another.
If a product could be easily transferred, arbitrageurs would buy the product in the cheaper market and resell it in the higher-priced (dearer) market.
This would drive prices down in the dearer market and up in the cheaper market until the price difference disappears.
Thus, preventing product transfer is necessary, making Condition (I) correct.
- Condition (II): The buyers in the dearer market can't transfer themselves into the cheaper market to buy the product.
If buyers in the higher-priced market could easily move to the cheaper market, they would simply purchase there.
The monopolist would then be unable to maintain different prices.
Thus, preventing buyer transfer is necessary, making Condition (II) correct.
Therefore, both conditions are correct.
Step 3: Final Answer:
Both Condition (I) and Condition (II) are correct.
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