What is the definition of the hurdle model of price discrimination? perfect hurdle? please explain clearly and give step by step explanations, thanks !
The Correct Answer and Explanation is:
Definition of the Hurdle Model of Price Discrimination:
The hurdle model of price discrimination is a pricing strategy where a seller sets a high price for a product but offers discounts to customers who are willing to overcome some form of obstacle or “hurdle” to get a lower price. The hurdle separates consumers based on their willingness to pay, allowing the seller to charge different prices to different groups without openly offering multiple prices to everyone.
Definition of a Perfect Hurdle:
A perfect hurdle is a type of hurdle that perfectly separates consumers based on their willingness to pay. It allows all consumers who are not willing to pay the full price to obtain the product at a lower price if they are willing to incur some cost or inconvenience, such as searching for coupons or waiting in line. At the same time, those who value their time or convenience more than money will pay the higher price. The perfect hurdle ensures that every consumer still purchases the product, but each pays the maximum amount they are willing to pay.
Step-by-Step Explanation:
- Initial Price Set High:
The seller offers a product at a high price, targeting consumers with a high willingness to pay. - Introduce a Hurdle:
A discount or lower price is made available, but consumers must overcome a hurdle. Examples include mailing in a rebate, clipping a coupon, buying at specific times, or traveling further. - Consumers Self-Select:
Consumers decide whether to pay the full price or go through the hurdle to get a discount. This decision depends on how much they value time or effort versus money. - Revenue Increases:
The seller captures more consumer surplus. Those willing to pay more do so, while more price-sensitive customers still buy but at lower prices. - Perfect Hurdle Condition:
If the hurdle perfectly segments consumers based on their willingness to pay, it is considered a perfect hurdle. Every consumer pays the most they are willing to pay, maximizing the seller’s profit without losing any customers.
