Publishers have traditionally sold textbooks at different prices in different ar

Question

Publishers have traditionally sold textbooks at different prices in different areas of the world. For example, a textbook that sells for $70 in the United States might sell for $5 in India. Although the Indian version might be printed on cheaper paper and lack color illustrations, it provides essentially the same information. Indian customers typically cannot afford to pay the U.S. price. Using the theory of price discrimination carefully analyze the given scenario to explain this differential pricing strategy. (Full credit will be given to detailed explanation provided highlighting the specific type of price discrimination at work, differences in elasticities in these two markets etc.)                                         (5 points)

5. Netflix has revolutionized the movie rental business by charging $8.99 a month for unlimited streaming movie service. On the other hand rental movie kiosks like Redbox are popping up by the thousands in supermarkets, drugstores, restaurants and convenience stores around the country. These kiosks stock DVDs that rent for $1.50 a day. Given the unlimited streaming option, Netflix definitely is a cheaper alternative for consumers who are serious movie watchers. Commenting on the nature of returns to scale and associated cost implications, argue why Netflix is able to keep its prices down compared to physical movie kiosks like Redbox. As part of your argument you should specifically identify the nature of returns to scale for Netflix and Redbox respectively commenting on fixed cost and enrollment number differences that is expected to exist across these companies.

Explanation / Answer

For the given case, a book is being sold at different price in US and India. The reason behind this can be cited as (1) quality of book (which is low in cheap-price location) (2) geographical location and standard of living (living standard and per capita income is higher in US as compared to India (3) Willingness to pay (since buyers in US have high incomes, they are willing to pay more for the book as compared to India, and are thus charged higher)

This makes it possible for sellers to extract as much consumer surplus as possible from buyers in each location and thus earn higher profits.

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