price discrimination

definition

firm charges different prices to different consumers on identical goods/services with no differences in cost of production

necessary conditions

• price making ability

• information to charge diff prices + seperate market on PEDs

• prevent market seepage (resale)

1st degree price discrimination

charging consumers maximum price. they are willing to pay, no consumer surplus

example

auctions

2nd degree price discrimination

• charging different consumers based on their choices, eg quantity, time

• also called indirect price discrimination as consumers are getting a choice firm allows consumer what choice they will pay

example

• electricity more expensive for first few units

• more electricity you consumer, lower the marginal cost

• coupons/loyalty cards

3rd degree price discrimination

• charging diffferent prices to different groups of consumers

• known as direct price discrimination

examples

• student discounts

• senior citizen railcard

• peak/off peak travel