Price discrimination

what are the 3 conditions for price discrimination

• firms must have price making ability

• information to separate the market

• prevention of re-selling

what is 1st degree

occurs when consumers are charged the maximum price they are willing and able to pay for a service

what is consumer surplus turned into

monopoly power

what is an example of 1st degree

car dealerships - they are going to charge you for the maximum price your willing to pay for a car

what is 2nd degree

when there is excess capacity so price changes based of what’s left

examples of 2nd degree

cinema and plane tickets, bulk buying

what is 3rd degree price discrimination

when a firm segments the market into different PED’s

example of 3rd degree

train tickets, during peak times consumers pay more and on off-peak times consumers pay less but due to the needed demand for on on-peak times consumers have to pay the higher prices

what are the cons for price discrimination

• allocative inefficient as consumers are being exploited

• causes inequality

• anti-competitive pricing

what are the pros

dynamic efficiency as producers are making SNP

Economies of scale

some consumer benefits

cross subsidisation