Posted at 12.29.2018
Publishers have customarily sold textbooks at different prices in different areas of the world. For example, a textbook that markets for $70 in the United States might sell for $5 in India. But the Indian version might be paper in cheaper paper and lack color illustrations, it provides basically the same information. Indian customers typically cannot manage to pay the U. S. price.
Use the theories of price discrimination offered in this section to explain this strategy.
The meaning of price discrimination is the practice of charging different prices to various groups of customers that are not based on variations in the costs of production. In another term, a sort product has been produced under same condition, same content, share the same cost, but it provides in several prices to different customers at different places, which in the context is the books.
Price discrimination normally took place in segmenting market that varying price elasticity or price sensitivity of demand. As in the context example, U. S. customers are segmented as inelastic market whereas India customers are elastic market. It discussed that U. S. customers will purchase the textbooks even it recharged in an increased price, however India customers might refuse or unaffordable to buy the bigger price books.
The purpose of price discrimination is to maximize the revenue that is due to consumer surplus. Consumer surplus is the difference between the total amount of money consumers are inclined to cover a product somewhat than do without and the amount they actually have to pay when a solitary price is incurred for all systems of the merchandise. Identifies the Figure 1 below, the customer surplus is the region of P1Abs.
As for the determination to pay, the clients might not want to buy the extra systems of product where they think aren't worth for it. Example, in India, there is plenty type of books posted by different publishers, why should the customers pick up one of yours? Even your textbooks fit the customers' wishes, but the value might be too much for the customers that they think it does not worth that much for them to pay for. Additionally it is the example of price elasticity in India market.
Basically, there are three theoretical models of price discrimination - first degree, second degree, and third level price discrimination. For the context of textbooks selling in India and U. S. market segments, it falls into the category of third degree price discrimination.
Third degree price discrimination is the most frequent form of price discrimination, where firms separate or section the markets according to the price elasticity of demand and demand a different price for each market. Certainly, the firms is charging an increased prices in the most inelastic demand market, which is U. S. and sells in less price in India that the marketplace is more flexible or price sensitive in demand.
Since the U. S. market and India market has difference in elasticity and willingness to cover the textbooks, the publisher sections the marketplaces by charging U. S. market a higher price. Meanwhile, publisher charged less price in India market to increase or improve its income.
U. S. market Quantity
India market Quantity
Figure 2On the other hand, if the publisher charged a higher price in India market as with U. S. selling price, the India customers may unaffordable to acquire the textbooks or they are not willing to pay that much just for a textbook, where in fact the textbook is not worthy of for what they are simply paying. Therefore, it would be failing in India market if the publisher provides the textbooks in a high price as with U. S. market, which is shown in the Body 2 predicated on the context example.
In the Shape 2, the right part is the demand of U. S. market and on the still left is the India market demand. In order to further explain why it might be failing to charge higher price in India market, it is drawn to shows that if the publisher demand $70 overseas all the market as in U. S. , there is absolutely no demand in the India market. In order to maximize the revenue, the publisher has to lower the price as like marginal income add up to marginal cost (MC=MR2) for the India market.
However, for the U. S. market that gets the demand and the determination to pay even in an increased selling price, it can be an unwise decision to lower the textbooks selling price in U. S. market as what it priced in India market for the intended purpose of price standardization in foreign countries. That is definitely the number in U. S. market increase but it does not served the guidelines of revenue maximization, where price at MC=MR1 should be billed in U. S. market that is $70.
If the publisher decides to sell this textbook online, what problems will this present for the costs strategy? How might the publisher respond?
For the price discrimination segmented market, one problem have to be identified and maintained by the firms, where the businesses must ensure or able to prevent the resale activity among different groups of customers. Otherwise, the clients who are recharged a lower price could be able to resell the merchandise readily available to the customers who are in the bigger price market portion.
Hence, if the publisher is going to sell the textbook online, it'll probably have to set a single price, where it is typically the high U. S. price. It really is a safe precaution step for the publisher to set in a higher price that to assume the customers who order online are affordable and inclined to pay even in high price. However, it could means that it will lose the India market who might not afford to pay for a high price books.
On the other aspect, publisher might think of customization or product differentiation. For instance, the publisher may amend the books content like the example in textbooks to use India money, rupees rather than U. S. dollar. This "India" version can be sold together with the original "U. S. " version online with different charges. Among the reasons is the India customers will feel more relevant to them that the example is at their money and it can enter a cheaper price. However, the U. S. customers that has been billed for higher price wouldn't normally tends to get the "India" version for a lesser price as it is less relevant to their market and environment.
Another method would be using the technology. With the use of technology, the publisher may established the different price for different market, where price discrimination could be did the trick online. First, publisher may need the online buyer to register an account for purchasing, where in fact the purchaser need to fill in their particular that includes the united states or location where the purchaser are stayed in. With the information compiled, the publisher can links the different sets of purchasers who result from different country or market segments into different online order site and purchase with different money. In the mean time, the publisher can also limit the delivery of textbooks to the origin country that the buyer registered. For example, if the customer is from India, the delivery is only going to be produced to India.