3. Product form. Many firms offer a product line where the top-of-the-line model is considerably more expensive than the other products in the line.Thismaybetrueevenwhenthereislittledifferenceinthecostofproduction of the different products. In this case there may be some consumers who are determined to have the best (stereo, television, car, mountain bike, tennis racquet), and therefore, again, their demand is less elastic in the normal price range.
4. Customer. This is the most controversial type of price discrimination because of concerns regarding fairness. Recalling the discussion in Chapter 1, fairness is a normative issue and is not relevant to the present analysis. Unfortunately the term ‘discrimination’ is an emotive word and tends to be associated with normative issues, but it is not our purpose to discuss these here. It is simply necessary to point out that firms can increase their profit by charging higher prices to customers whose demand is less elastic, provided that there is no possibility of resale between market segments, as explained earlier. This explains the discrimination carried out by many providers of professional services, including universities. It also explains the price discrimination practised by many exporters, charging higher prices in the domestic market in spite of lower costs; it is worth noting that in this case there are limited opportunities for arbitrage, which is why many UK residents are now buying expensive consumer durables like cars in mainland Europe and shipping them back to the UK. This aspect is discussed in more general terms in the next subsection.