Which of the following statements about price discrimination is not true?

• A. Price discrimination can only occur in perfectly competitive markets.
• B. Price discrimination requires the ability to segment markets.
• C. Price discrimination is more effective when resale between consumers is difficult or impossible.
• D. Price discrimination allows firms to increase their profits by charging different prices to different consumers.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of price discrimination. Price discrimination occurs when a firm charges different prices to different consumers for the same good or service, based on their willingness to pay, rather than differences in cost.
2. Step 2: Recall the market conditions necessary for price discrimination. Key requirements include: the firm must have some market power (not be in perfect competition), be able to segment the market, and prevent or limit resale between consumers.
3. Step 3: Analyze each statement in the problem: The statement 'Price discrimination can only occur in perfectly competitive markets' contradicts the requirement that firms must have market power, which is absent in perfect competition.
4. Step 4: Confirm that the other statements are true: Market segmentation is necessary, resale must be difficult to prevent arbitrage, and price discrimination can increase profits by charging different prices based on consumer willingness to pay.
5. Step 5: Conclude that the false statement is the one claiming price discrimination can only occur in perfectly competitive markets, because price discrimination requires some degree of market power, which perfect competition does not provide.