Price Discrimination and Market Power

Price Discrimination

The practice of charging different prices to different consumers for the same product.

Perfect Price Discrimination

A scenario where producers know each consumer's willingness to pay and can charge each consumer the maximum price they are willing to pay.

Second Degree Price Discrimination

Pricing strategy where consumers are charged different prices based on the characteristics of their purchases.

Third Degree Price Discrimination

Pricing strategy where consumers are charged different prices based on observable characteristics such as age or status.

Marginal Cost

The cost of producing one additional unit of a good.

Consumer Surplus

The difference between what consumers are willing to pay and what they actually pay.

Producer Surplus

The difference between the price producers receive for a good and the marginal cost of producing it.

Resale Possibility

The likelihood that a product can be resold after initial purchase, impacting pricing strategies.

Monopolistic Power

The ability of a producer to raise prices above the market equilibrium without losing all customers.

Demand Curve

A graph that shows the relationship between the price of a good and the quantity demanded.

Total Surplus

The total net benefit to society from the production and consumption of a good, comprising consumer and producer surplus.

Market Efficiency

A state where resources are allocated in the most efficient manner, maximizing total surplus.

Elastic Demand

A situation where the quantity demanded is highly responsive to price changes.

Inelastic Demand

A situation where quantity demanded is not very responsive to price changes.

Monopoly

A market structure characterized by a single seller or producer that controls the entire supply of a product.

Natural Monopoly

A market where a single provider is more efficient than multiple providers, often due to high fixed costs.

Economies of Scale

Cost advantages reaped by companies when production becomes efficient, as the volume of production increases.

Social Surplus

The sum of consumer surplus and producer surplus in the market.

Non-Excludable Good

A good that cannot be withheld from individuals who do not pay for it.

Non-Rivalrous Good

A good whose consumption does not diminish its availability to others.

Reservation Price

The maximum price a consumer is willing to pay for a good.

Price Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in its price.

Fixed Costs

Costs that do not change with the level of output, such as rent or salaries.

Variable Costs

Costs that vary with the level of output, such as raw materials.

Market Structure

The organizational and other characteristics of a market.

Interdependence

A situation where the decision of one firm affects the decisions of others in the market.

Price Taker

A firm that must accept the market price set by forces of supply and demand.

Price Maker

A firm that has the power to set prices rather than taking the market price.

Consumer Preferences

The subjective tastes and preferences of consumers that influence their purchasing decisions.

Market Segmentation

The process of dividing a broad target market into subsets of consumers with common needs or characteristics.

Data Collection

The process of gathering information to analyze consumer behaviors and preferences.

Personalization

Customizing a product or service to meet the individual needs of consumers.

Market Power

The ability of a firm to influence the price of a good or service in the market.

Competitive Market

A market structure characterized by a large number of small firms competing against each other.

Price Discrimination Example

Airline ticket pricing where consumers pay different prices for the same flight.

Test Drive Strategy

An example of price discrimination where car dealers assess consumer needs during a test drive to set customized prices.

Willingness to Pay

The maximum price at which a consumer would buy a good.

Digital Strategies

Using online tools and data analytics to set personalized prices for consumers.

Behavioral Economics

The study of how psychological factors affect economic decision-making.

Cookies

Data files created by websites that track user behavior and preferences.

Consumer Research

The process of gathering insights on consumer behavior and preferences.

Utility Companies

Firms that provide essential services such as water, electricity, and gas.

Public Transportation Pricing