Studied by 0 people
Looks like no one added any tags here yet for you.
Price Discrimination
When a firm charges different prices to different consumers for the same product based on ability and willingness to pay.
Conditions for Price Discrimination
Necessary conditions include having sufficient monopoly power, identifying market segments, ability to separate groups, and preventing resale.
First Degree Price Discrimination
Also known as perfect price discrimination, occurs when the firm charges the maximum possible price to each consumer.
Second Degree Price Discrimination
Involves charging different prices based on the quantity demanded; often referred to as block pricing.
Third Degree Price Discrimination
Occurs when firms segment the market into groups based on characteristics and charge different prices accordingly.
Consumer Surplus
The amount a consumer is willing to pay minus the amount they actually pay.
Producer Surplus
The difference between the amount producers receive for a good or service and the minimum amount they are willing to accept.
Market Segmentation
Dividing consumers into groups based on characteristics such as age, sex, or location to charge different prices.
Price Elasticity of Demand
A measure of how much the quantity demanded of a good changes when the price changes.
Monopoly Power
The ability of a firm to set prices above marginal cost due to lack of competition.
Cross Subsidy
Using profits from one product or service to subsidize the cost of another.
Allocative Efficiency
A state in which resources are distributed in such a way that maximizes total consumer and producer surplus.
Examples of Price Discrimination
Zonal pricing by Asos, airlines using online auctions for premium seats, and higher prices at WH Smith in hospitals.
Consumer Exploitation
When consumers are charged prices significantly higher than the marginal cost.
Supernormal Profit
Profit that exceeds normal profit; also referred to as economic profit.
Barriers to Entry
Obstacles that make it difficult for new competitors to enter a market.
Off-Peak Pricing
Charging lower prices for services during times of lower demand.
Dynamic Efficiency Gains
Improvements in production and innovation as a result of profitable firms reinvesting in research.
Ability to Pay
The income or financial capability of a consumer to purchase a good or service.
Willingness to Pay
The maximum price a consumer is willing to pay for a good or service.
Secondary Markets
Markets where reselling of goods occurs, which can impact price discrimination strategies.
Information and Market Intelligence
Data and insights used by firms to understand consumer behavior and preferences.
Demand Curve
A graphical representation showing the relationship between quantity demanded and price.
Marginal Cost (MC)
The cost of producing one additional unit of a good.
Marginal Revenue (MR)
The additional revenue generated from selling one more unit of a good.
Profit Maximization
Setting output where marginal cost equals marginal revenue to maximize profit.
Competitive Pricing
Setting prices based on competitors' prices and market dynamics.
Block Pricing
A form of second degree price discrimination where prices vary depending on quantity purchased.
Variable Pricing
Adjusting prices based on consumer data or market conditions.
Elastic Demand
When the quantity demanded is sensitive to changes in price.
Inelastic Demand
When the quantity demanded is not sensitive to changes in price.
Peak Travel Pricing
Higher prices charged during times of high demand, often seen in transportation industries.
Saturation Pricing
Setting lower prices initially to gain market share, later increasing once established.
Price Adjustment
Modifying prices based on demand, competition, and other external factors.
Market Stall Pricing
A form of first degree price discrimination where prices are set based on individual negotiations.
Handling Consumer Data
Using consumer information to tailor pricing strategies effectively.
Economic Efficiency
Achieving the best possible outcomes in terms of resource allocation, productivity, and welfare.
Fair Pricing
Prices that are perceived as equitable by consumers, often a standard for ethical pricing strategies.
Price Variation
Changes in pricing depending on market conditions, demand fluctuations, or consumer segments.
Revenue Maximization Strategy
A method employed by firms to increase total revenue through various pricing techniques.
Customer Loyalty Programs
Marketing strategies designed to encourage repeat purchases by offering incentives.
