Price discrimination: charging different prices for essentially the same good.
Price may depend on, e.g.
- buyer characteristics, preferences or location
- variations of the good that do NOT materially affect costs
There are 3 Types of Discrimination, and demonstrated the Producer Surplus and Consumer Surplus, with Marginal Cost and Marginal Revenue.
There is also a case study to understand the strategies to take, and look into the common obfuscation strategies companies take and the policy implication and potential solutions.
Summary of Price Discrimination
- First-degree price discrimination extracts all customer surplus but is not always feasible.
- Third degree price discrimination implies charging higher prices to segments of the market with lower price elasticity.
- Second-degree price discrimination implies offering different ‘packages’ to induce customers to self-select. To extract surplus from high valuation customers, the low option must be sufficiently unattractive.