When a firm charges different prices for different groups of customers, it may be accused of _________.
A
cultural relativism
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B
money laundering
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C
facilitating payments
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D
price discrimination
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Solution
The correct option is D price discrimination
Price discrimination is a pricing strategy that charges customers different prices for the same product or service. In pure price discrimination, the seller charges each customer the maximum price he or she will pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price.
Price discrimination is most valuable when the profit from separating the markets is greater than the profit from keeping the markets combined. This depends on the relative elasticity of demand in the sub-markets. Consumers in the relatively inelastic sub-market pay a higher price, while those in the relatively elastic sub-market pay a lower price.