Cross subsidization is defined as the variation in the price policy for 2 sets of buyers or it can be stated as When a marketer charges higher prices to a group of consumers in order to subsidise lower prices for another group, it is referred to as cross-subsidisation.
This is a relevant topic for IAS exam aspirants.
What is cross-subsidization price shifting?
Cross-subsidization price shifting is the approach when some payers are charged more than full costs to make up for other payers that are paying less than full costs.
Name a few other sectors where cross-subsidization is prevalent
Cross-subsidization can also be seen in healthcare and electricity departments.
What is the benefit of product cost cross-subsidization?
The major benefit of product cost cross-subsidization is the substantial growth in the business because of the pricing value.
When a seller uses this strategy, high upward growth is visible in the business and if the quality of the product being sold and the customer service are on par with competitors, there are higher chances of conversion of indecisive buyers towards your underpriced item.
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