Which pricing strategy involves setting the price of a product or service based on the maximum amount a consumer is willing to pay, thereby capturing the highest possible consumer surplus?

• A. Price discrimination
• B. Cost-plus pricing
• C. Loss leader pricing
• D. Penetration pricing

Answer: (A)

Verified step by step guidance

1. Understand the concept of consumer surplus, which is the difference between what a consumer is willing to pay for a good or service and what they actually pay.
2. Recognize that the pricing strategy that aims to capture the maximum consumer surplus by charging different prices to different consumers based on their willingness to pay is called price discrimination.
3. Recall that cost-plus pricing involves setting prices by adding a markup to the cost of production, which does not consider individual willingness to pay.
4. Note that loss leader pricing involves setting a low price on a product to attract customers, often below cost, and is not focused on capturing consumer surplus.
5. Understand that penetration pricing sets a low initial price to enter a market and gain market share, rather than maximizing consumer surplus.