How does your knowledge of price discrimination enable

Reference no: EM132180423

Question: A Large Beef About Oxo

Are you paying too much for Oxo cubes? It has come out in a court case that Brooke Bond's export price for Oxo cubes is 42 per cent cheaper than shops in Britain pay. On the fact it that should mean that a packet of Oxo selling at around 38p in your local shop should cost only 22p. Brooke Bond could not explain its double pricing because all its experts are busy giving evidence at the trial. The defendants are accused of trying to buy Oxo at the cheaper export price in order to sell it in Britain at a profit. Surely the real crime is that firms operate such two-faced pricing systems in the first place. I look forward to hearing Brooke Bond's explanation when its experts can spare me the time. Source: Daily Minor (28 October 1987)

(a) How does your knowledge of price discrimination enable you to analyses the behavior of Brooke Bond with respect to the pricing of Oxo cubes?

(b) One of the conditions for price discrimination to exist is a 'separation of markets' with no 'seepage' between markets.

(i) Explain how this condition seems to have broken down in the Oxo case.

(ii) Would you agree that the continuation of price discrimination partly depends on consumer ignorance?

(iii) Suggest why the company appears to be willing to go to the expense of a court case in order to maintain separate markets.

(c) Apart from the condition referred to in (b), how are the other conditions for price discrimination likely to apply to Oxo?

(d) What possible reasons might Brooke Bond put forward to try to justify their pricing policy, and how might these differ from an economist's analysis of the matter?

Reference no: EM132180423

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