It is a standard practice for markets in different industries to adapt prices to different groups of buyers. This is due to the size of their purchases, the seller’s trust, the length of the transaction, and other factors. The case under consideration is an example of a similar pricing policy that changes for different consumer companies. This is the second-degree price discrimination; in other words, the buyer who purchases the most services is entitled to a price reduction (Ahuja, 2017). This allows the supplier to sell more to that company, which ultimately leads to increased revenue. In addition, other buyers receive services at higher prices, which positively affects their income level as well.
In this situation, both groups of customers will be satisfied with the conditions. Those who buy goods at a lower price will have a higher level of trust in the supplier and be able to buy more. This will contribute to the development of close trust relationships between these companies. Other, smaller customers will see that the supplier is reliable and willing to cooperate on an ongoing basis. Thus, each side in this situation gains its advantages.
Price discrimination, in this case, is entirely legal. It does not violate the rights of customers and does not lead to excessive competition between them. These are companies of different levels, so they are in different economic niches (Hirschey & Bentzen, 2016). In addition, the services provided are of sufficient quality, so their provision is also legitimate. Thus, in the described situation, price discrimination is a competent managerial decision. It can help increase customer confidence and a company’s revenue. These factors will have a positive impact on its future functioning.
References
Ahuja, H. L. (2017). Managerial economics (analysis of managerial decision making), 9th edition. New Delhi, India: S. Chand Publishing.
Hirschey, M., & Bentzen, E. (2016). Managerial economics. Andover, UK: Cengage Learning.