ACCA Performance Management (F5) Certification Practice Exam

What is a feature of price discrimination?

1. Setting a universal price for each customer

2. Charging different prices based on market conditions

3. Offering bulk discounts to all customers

4. Making prices uniform across locations

The correct answer is: Charging different prices based on market conditions

Price discrimination refers to the practice of charging different prices to different consumers for the same good or service, with the aim of maximizing revenue based on varying price sensitivities and market conditions. The correct choice indicates that prices can be adjusted based on specific market conditions, allowing businesses to capture consumer surplus by tailoring their pricing strategies to the willingness to pay of different customer segments. For instance, a company might charge higher prices in regions where demand exceeds supply or during peak seasons. This flexibility enables firms to optimize profits by leveraging the diverse elasticities of demand in different markets or customer groups. This strategic pricing approach typically requires a good understanding of customer behavior and market dynamics. The other options do not align with the principles of price discrimination. Setting a universal price for each customer implies uniformity, which contradicts the essence of price discrimination. Offering bulk discounts to all customers does not differentiate based on individual willingness to pay but rather incentivizes larger purchases collectively. Similarly, making prices uniform across locations would negate any opportunity to adjust prices in response to local demand variations. Thus, the focus on adapting prices based on specific market conditions makes the second option the defining feature of price discrimination.