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Chapter 16: Problem 6

While in Shanghai, China, to teach an MBA course, Craig Richardson, an economics professor from WinstonSalem State University, asked his American students to haggle with sellers in a market where prices for the same items can vary widely. Professor Richardson explained that the same item with the same sticker price at different market stalls can have a final price that varies "by \(1,500 \%\) or more, depending on the negotiating skills of the buyer." a. Do Shanghai merchants practice price discrimination? Briefly explain. b. Which consumers are likely to pay the highest prices for similar items in the Shanghai market?

Short Answer

Expert verified
a. Yes, Shanghai merchants practice price discrimination as they sell the same items at different prices based on the negotiating skills of the buyer. b. Consumers with lesser negotiating power like tourists, new visitors, or individuals in a hurry or less able to haggle are likely to pay the highest prices for similar items in the Shanghai market.

Step by step solution

01

Define Price Discrimination

Price discrimination involves selling the same product at different prices to different consumers. The pricing does not reflect the cost of production but is often based on what the buyer is willing or able to pay.
02

Apply Price Discrimination to the Shanghai Market

Considering the Shanghai market situation, where sellers charge different prices for the same item based on the negotiating power of the buyer, it can be said that Shanghai merchants do practice price discrimination. The wide variation in the final price of the same item suggests that prices are negotiable and therefore, different buyers may end up paying different prices for the same item.
03

Identify Consumers Likely to Pay Highest Prices

The consumers likely to pay the highest prices for similar items in the Shanghai market would be those with lesser negotiating power. These could be individuals with less familiarity with the market (like tourists or new visitors), those in a hurry, or those who are less willing or able to haggle for lower prices.

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