7. Price Disrimination
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10 Terms
What is Price Discrimination
Where a firm charges different prices to different consumers for an identical good/service with no differences in costs of production
Conditions for Price Discrimination
Price Making Ability
Information to Seperate the Market
Prevent Re-Sale (Market Seepage)
What is First Degree Price Discrimination
When a firm charges the exact price the consumer is willing and able to pay, eroding all consumer surplus
What is Second Degree Price Discrimination
Charging different prices depending on the quanity/volume consumed or the version of the product
e.g. buy one get one free, 3 for 2, subscription tiers
What is Third Degree Price Discrimination
When firms segment the market into different elasticities of demand and charges different prices to those different groups
This can be based on time differences, age, income, location
Pros of Price Discrimination
Dynamic Efficiency
Economies of Scale
Some Consumers Benefit
Cross Subsidisation
Cons of Price Discrimination
Allocative Inefficiency
Income Inequality
Anti-Competitive Pricing (lower prices drives out other firms and reduces competition)
First Degree Price Discrimination Diagram
Second Degree Price Discrimination Diagram
Third Degree Price Discrimination Diagram
