In the spring of 2005, General Motors shifted its auto discounting policy to regionally targeted rebates in which the manufacturer offered varying discounts to different parts of the United States. Suppose that GM dealers offered all consumers in a given region the same posted price for a specific model (which was GM's pricing policy for its Saturn automobiles). Assume that it is unprofitable for a consumer to purchase an automobile in a low-price area and then to resell it in a high-price area.
a. What form of price discrimination was GM's new policy?
b. What is the relationship between a region's price and its price elasticity of demand?
c. GM also eliminated a high-profile discount program "in an apparent effort to damp consumer expectation of big price cuts" (Lee Hawkins Jr., "GM Alters U.S. Discount Program with a Region-Specific Strategy," Wall Street Journal, March 7, 2005, A2). How do expected future prices of an automobile affect the current demand? Is a national discount program that is targeted to reduce slumping sales a form of price discrimination? Explain.