price discrimination - first, second and third degree

what is price discrimination

when a firm charges different prices to different consumers for an identical good/service with no differences in costs of production

what are the conditions necessary for a firm to be able to price discriminate

price making ability

information to separate the market

prevent re-sale (market seepage)

why do firms need to have information to separate the market to price discriminate

so that they can separate consumers into different groups depending on how much they are willing to pay with different PEDs and price them accordingly

why do firms need to be able to prevent the re-sale to price discriminate

because otherwise consumers will buy the product from at a lower price and sell it at a higher price which does not benefit the firm

what is 1st degree price discrimination

when an individual consumer is charged the exact price they are wiling and able to pay or a good or service

what happens to the consumer surplus when 1st degree price discrimination takes place

monopoly profit

1st degree price discrimination diagram

what is 2nd degree price discrimination

when consumers are charged different prices depending on how much they consumer

why would firms with fixed capacity lower prices last minute

to try and incentivise consumers to use it as it does not benefit the firm in any way to have excess capacity

when would consumers in 2nd degree price discrimination gain consumer surplus

when they buy last minute, when prices have been reduced due to excess capacity

2nd degree price discrimination diagram

what is 3rd degree price discrimination

when consumer are put into different groups with other consumers that have similar characteristics, similar PED

3rd degree price discrimination diagram

what are the negatives of price discrimination

allocative inefficiency

inequalities

anti-competitive pricing

what are the positives of price discrimination

dynamic efficiency

economies of scale

some consumers benefit

cross subsidisation