Subject Code : 2303AFE
Assessment Task:
2303AFE: Economics for Decision Making Assessment Answer 

The Economics of Price Targeting by Australian Supermarkets In the simple supply and demand model of price setting, there is just one equilibrium price that each customer pays for each unit we purchase of a product. This is the ‘benchmark’ case for when a firm has no pricing power so the price of a product is set by the market. But in a modern economy most companies will have some degree of pricing power. Rather than charge a uniform price to all its customers, the company may instead try to target its customers with different prices.

Either different types of customer may pay distinctive prices or perhaps each customer pays a higher/lower price for an additional unit or block of units of the good that they buy, or both. A company will only choose to discriminate if it believes it can earn greater total profits than if it were to charge the same price for every unit it sells, to each customer. Therefore: Explain why our supermarkets choose to price target (discriminate). Describe one interesting example you are familiar with.

Either online or in-store examples are fine. Do you think price targeting is fair? Make use of your textbook, especially chapter 15 on ‘monopoly’, the TV episode ‘shopping’ by Tim Harford that we showed in class for topic 5 and other research of your own. Try to use a diagram(s) to illustrate concepts and arguments where useful and couch your discussion in the terminology, language and concepts of microeconomics. A rubric will be available at a later date.

 

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  • Posted on : November 12th, 2018

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