Economics
Dell Inc is an American company based in Texas, it develops, manufactures, sells and supports personal computers, servers, data-storage devices and other technology-related products. Recently, company was in news for price discrimination.
“Dell charges UK a premium for Linux PCs”, (www.news.zdnet.co.uk, 2007)
Article overview
From the article, we get an idea of pricing strategies of Dell Inc, articles discusses about their pricing strategy in UK and US. As per the article, Dell Inc has recently launched their Linux PC’s with Inspiron 530n desktop and the Ispiron 6400n notebook. However, price for Linux Pc’s in US and UK differs considerably. After comparing the identical specification for Inspiron 530n, US turned out to be cheaper by £111 or less by 36% than UK. However, Dell spokesperson Mr Adam Griffin have given very diplomatic response to this by saying that UK users will not be asked to pay premium compared to American consumers. But from the past experience of Adobe charging different prices to UK and US consumers, we can say that it’s a normal trend to overcharge UK consumer or we can also say that UK consumer market for PC products is more inelastic than US .This type of Dell’s pricing strategy is clearly price discrimination of third degree. (www.news.zdnet.co.uk, 2007)
Price discrimination
Price discrimination is a practice of charging different prices to different groups or customers. This difference in price does not reflect the difference in cost of production but rather reflects the differences in consumer willingness for paying. Price discrimination also happens when same price is charged to different groups but there are differences in the cost of production.
(Farnham 2005, p281)
A company can successfully do price discrimination if it satisfies the three basic requirements.
1. Company should have some degree of market power or monopoly,...
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