ACCA Performance Management (F5) Certification Practice Exam

What does price discrimination pricing strategy mean?

1. Selling different products at the same price

2. Charged different prices for the same product in different markets

3. Offering a single price for various customer segments

4. Providing discounts based on customer loyalty

The correct answer is: Charged different prices for the same product in different markets

Price discrimination refers to the practice of charging different prices for the same product or service based on various factors, such as the market in which it is sold or the characteristics of the buyer. This strategy allows businesses to maximize their profits by capturing consumer surplus—charging higher prices to those who are willing to pay more and lower prices to more price-sensitive customers. In the context of the chosen answer, option B correctly defines price discrimination as it acknowledges that the same product can be sold at different prices in different markets. This can happen due to factors such as geographical location, variations in demand, or differing competitive environments. For example, a company might charge a higher price in a market with less competition compared to another market where several competitors exist, leading to lower pricing. This method is quite common in industries such as travel, pharmaceuticals, and entertainment, where customers may be willing to pay different amounts depending on the circumstances, such as time of booking or the specific demographic group they belong to. As a result, price discrimination can be a powerful tool for businesses to optimize their pricing strategies and enhance revenue.