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Sam Rodrigues’ Tryst with Price Discrimination (A): Degrees of Price Discrimination

CASELET, MANAGERIAL ECONOMICS
ET Cases, 6 pages

Case Preview

Sam Rodrigues’ Tryst with Price Discrimination (A): Degrees of Price Discrimination

 

On September 5th 2015, Sam Rodrigues (Sam) an employee at one of the leading Indian IT companies visited Mary Diagnostic Center (MDC) in Hyderabad to undertake various medical tests that his Consultant Physician had recommended the previous week. After filling up the required details in the form given to him, he paid 2000 for all the tests. He noticed people from various strata of the society walk into the diagnostic center for taking various diagnostic tests. Sam observed that the same services were charged differently for people from different income levels. Also, the charges were lower if the tests were recommended by a doctor from an affiliated hospital. He was perplexed why was there price discrimination for the same service/services from the same service provider.........

Teaching Note Preview

Sam Rodrigues’ Tryst with Price Discrimination (A): Degrees of Price Discrimination

 

Synopsis

These two caselets (Sam Rodrigues’ Tryst with Price Discrimination (A): Degrees of Price Discrimination and Sam Rodrigues’ Tryst with Price Discrimination (B): Single Monopoly vs Price Discrimination) enable a discussion and an understanding on the concept of price discrimination. The discussion is enabled with reference to Sam Rodrigues’ (Sam) – the protagonist of the caselet – experiences with price discrimination. Sam encounters several episodes of price discrimination when he visits Varun Hospitals for a general health checkup and to Mary Diagnostic Center (MDC) to take the recommended diagnostic tests. Through Sam’s experiences, the caselets help understand not just the core concept of price discrimination but also allied concepts such as the types and degrees of price discrimination and comparison between a single monopoly price and price discrimination. It also throws open some relevant economic questions – what are the advantages and disadvantages of price discrimination? What are the conditions under which price discrimination will be possible and profitable? Why is price discrimination more desirable for a monopolist than charging a single monopoly price?

Prerequisite Conceptual Understanding

• Paul A. Samuelson, et al., “Competition among the Few”, Economics, 19th Edition, McGraw Hill Education (India) Private Limited, 2010 – To understand the concept of price discrimination

Case Positioning and Setting

These caselets can be suitably used in:

  • • Managerial Economics course to teach the concept of price discrimination in a monopoly

 

Assignment Questions

I. What do you understand by price discrimination? What are the advantages and disadvantages of price discrimination?
II. What are the types and the three degrees of price discrimination? Illustrate the three degrees of price discrimination with the help of caselet facts. Who would benefit under each of the three degrees of price discrimination?
III. ...................

Preamble to this Caselet Analysis

The purpose of these two caselets is to introduce the students/participants to the concept of price discrimination (Caselet A) and to distinguish between a single monopoly and price discrimination (Caselet B). The advantages, disadvantages, types and degrees of price discrimination as well as the necessary conditions for price discrimination were discussed in the classroom taking examples from Sam Rodrigues’ story. Further, the comparison between a single monopoly price and price discrimination was also discussed with the help of Caselet (B) facts. The discussion was accordingly orchestrated in the classroom [Exhibit (TN)-I].............

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Abstract


This caselet's purpose is to introduce the participants/students to the concept of price discrimination in the context of imperfect markets. Referred to as discriminating monopoly, price discrimination occurs when a seller charges different prices to the same/different buyers for the same good/commodity or service without any corresponding difference in cost. When Sam Rodrigues visits Mary Diagnostic Center for his health checkup, referred by the Consultant Physician at Varun Hospitals, the pricing structure intrigues him. While there are different prices for different bundles of services, Sam Rodrigues was perplexed when he realized that the same service was being offered to different customers (patients) at different prices. Why was there price discrimination for the same services offered by the same service provider?



Pedagogical Objectives

  • To understand and illustrate the concept of price discrimination in an imperfect market condition and analyze the advantages and disadvantages of price discrimination
  • To learn the types and degrees of price discrimination and examine the output and price decisions under the three degrees of price discrimination
  • To discuss and debate on the necessary conditions for price discrimination and the conditions under which price discrimination is possible and profitable

Case Positioning and Setting

This caselet can be suitably used in:

  • Managerial Economics course to teach the concept of price discrimination in a monopoly




This Case Pack Includes:
- Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
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