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Price discrimination doesn't work under perfect competition (see: law of one price). Insofar as it might work for Home Depot, it may be due to local monopoly (
by rpenm 9y ago
Price discrimination doesn't work under perfect competition (see: law of one price).
Insofar as it might work for Home Depot, it may be due to local monopoly (competitor is not co-located) and asymmetric information (customers assume a bigger quality difference than is true). However in my experience, the price of premium tools/supplies often does reflect higher production cost these days.
- ghayes 9y agoIt sounds like law of one price only refers to goods where there is an arbitrage opportunity. If the goods have different intrinsic values, then they would have different prices, which I believe is what the original comment is arguing.
- rpenm 9y agoPrice discrimination is when a producer charges different customers different prices for the same good. So yes, price discrimination is implicitly an arbitrage opportunity - assuming there is competition. Truly different goods don't have the same implications for consumer and producer surplus. That's not to say that price discrimination can't be disguised.