Price discrimination

What is price discrimination?

• Charging different prices to different consumers for the same good

What is first-degree price discrimination?

• Charging each consumer their exact willingness to pay

What is second-degree price discrimination?

• Offering price menus to induce self-selection

What is third-degree price discrimination?

• Charging different groups different prices based on observable characteristics

What condition must be met for third-degree price discrimination to increase profit?

• Each group must have different elasticities of demand

What is a necessary condition for effective price discrimination?

• No resale between customers

Why can price discrimination lead to efficiency?

• It can allow more consumers to access the good

What does a monopoly need to implement first-degree price discrimination?

• Complete information about each consumer's valuation

What is block pricing?

• Charging different prices for different quantities consumed

How is self-selection used in second-degree price discrimination?

• Consumers choose from pricing options revealing their type