Explain the difference between price leadership and price discrimination.

Mark scheme

Marking points from the official mark scheme (May/June 2017). The mark or mark type is shown in brackets.

1. Motives for price leadership and/or price discrimination. Price leadership refers to a situation where prices and price changes are established by a dominant firm which other firms in the industry adopt and follow. When price leadership is used to facilitate collusion, the price leader will generally tend to set a price high enough so that the least cost-efficient firm in the market may earn some return above the competitive level. Price discrimination is the charging of different prices for the same product with same production costs. Conditions for price discrimination.
2. Level 4 (9-12 marks): for both terms explained, sound elaboration of both terms given
3. Discussion of the various aims of the firm, profit maximising, behavioural, managerial, satisficing, and a consideration of whether profit maximising is the main aim and whether it is possible to calculate mc and mr.
4. Level 4 (9-13 marks): For a reasoned and well-argued discussion with clear explanation of a range of aims and comment on possibility of using mc=mr rule in reality together with a conclusion. Max. 11 if no critique of mc = mr rule.