DECA Sports and Entertainment Marketing Practice Exam

What is price discrimination?

1. Setting prices based on competitor pricing

2. Charging different prices to different consumers for the same product

3. Offering price reductions to certain customer groups

4. Establishing standard prices across all markets

The correct answer is: Charging different prices to different consumers for the same product

Price discrimination refers to the practice of charging different prices to different consumers for the same product or service. This strategy is often employed by businesses to maximize revenue by taking advantage of varying levels of willingness to pay among different customer segments. For example, a company might charge higher prices to customers who are less price-sensitive and willing to pay more, while offering discounts to price-sensitive customers. This approach can be seen in various industries, such as airlines, where the same seat on a flight might be sold at different prices based on factors like booking timing, customer loyalty status, or the perceived urgency of the purchase. By differentiating prices, companies effectively tailor their offerings to meet the distinct financial capabilities and readiness of various consumer groups, thereby optimizing their sales potential. In contrast, setting prices based on competitors generally aligns with market competition strategies, while offering price reductions to specific customer groups focuses on promotional tactics rather than systematic price discrimination. Establishing standard prices across all markets shows a uniform pricing strategy that does not account for consumer differences, which runs counter to the concept of price discrimination.