What is called price discrimination?

Asked By: Zhiyi Naglschmid | Last Updated: 18th March, 2020
Category: personal finance options
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Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to. In pure price discrimination, the seller charges each customer the maximum price he or she will pay.

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Just so, what do you mean by price discrimination?

Definition: Price discrimination is a pricing policy where companies charge each customer different prices for the same goods or services based on how much the customer is willing and able to pay. Typically, the customer does not know this is happening.

Additionally, what is an example of price discrimination? Price discrimination occurs when identical goods or services are sold at different prices from the same provider. Examples of forms of price discrimination include coupons, age discounts, occupational discounts, retail incentives, gender based pricing, financial aid, and haggling.

Additionally, what are the 3 types of price discrimination?

Price discrimination is the practice of charging a different price for the same good or service. There are three types of price discrimination – first-degree, second-degree, and third-degree price discrimination.

What is called price discrimination and how a monopolist charges different prices in different sub markets?

Geographical: Refers to price discrimination when the monopolist charges different prices at different places for the same product. This type of discrimination is also called dumping.

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What is the purpose of price discrimination?

The purpose of price discrimination is generally to capture the market's consumer surplus. This surplus arises because, in a market with a single clearing price, some customers (the very low price elasticity segment) would have been prepared to pay more than the single market price.

How does price discrimination work?

Price discrimination is a selling strategy that charges customers different prices for the same product or service based on what the seller thinks they can get the customer to agree to. In pure price discrimination, the seller charges each customer the maximum price he or she will pay.

What is the market?

A market is a place where buyers and sellers can meet to facilitate the exchange or transaction of goods and services. Other examples include the black market, auction markets, and financial markets. Markets establish the prices of goods and services that are determined by supply and demand.

Is first degree price discrimination efficient?

Price discrimination is bad. Together they are efficient. A first-degree price-discriminating monopoly also maximizes profit by equating marginal revenue to marginal cost. The difference, however, is that price is equal to marginal cost for the discriminating seller.

Why is price discrimination bad?


Price discrimination is a transfer of welfare from consumers to producers. To economists, this is neither good or bad. Price discrimination increases total welfare. By allowing people to consume who would otherwise not consume, price discrimination reduces deadweight loss and increases total welfare.

Is third degree price discrimination legal?

Third degree
Charging different prices to different customers is legal (save for race-based and other sensitive cases), but if determined to have anticompetitive implications, it can be deemed illegal under the Sherman Antitrust Act and subsequent legislation (such as the Robinson-Patman Act of 1936).

What type of price discrimination do airlines use?

As a consequence, airlines use the mechanism known as inter-temporal pricing, which allows them to target both “price sensitive” and “price insensitive” consumers. This represents a form of price discrimination, particularly evident among low-cost airlines. As Air Asia explains: “Want cheap fares, book early.

What is the concept of market power?

Market power refers to the ability of a firm (or group of firms) to raise and maintain price above the level that would prevail under competition is referred to as market or monopoly power. The exercise of market power leads to reduced output and loss of economic welfare.

How do you calculate price discrimination?

If the monopolist sets a price of $80, then we calculate the number sold by plugging P = 80 into the market demand equation and solving for Q. If the firm sets a price of $30, then we can similarly calculate the number that would be sold at P = 30.

What is price discrimination and its conditions?


Price discrimination is possible under the following conditions: The seller must have some control over the supply of his product. The seller should be able to divide the market into at least two sub-markets (or more). The price-elasticity of the product must be different in different markets.

What do you mean by perfect competition?

Definition of 'Perfect Competition' Definition: Perfect competition describes a market structure where competition is at its greatest possible level. To make it more clear, a market which exhibits the following characteristics in its structure is said to show perfect competition: 1. Large number of buyers and sellers.

What is indirect price discrimination?

Definition of indirect price discrimination
Pricing strategy that charges different prices relative to costs according to buyer's choice for similar goods or services. It is designed to elicit higher profit margins from buyers with higher willingness to pay.

What is price discrimination PDF?

Price discrimination is when the same firm charges different prices to different people for the same product. This would be the case where the firm can uncover the willingness- to-pay (WTP) for each customer and then charge based on the WTP.

What are the 5 pricing strategies?

Generally, pricing strategies include the following five strategies.
  • Cost-plus pricing—simply calculating your costs and adding a mark-up.
  • Competitive pricing—setting a price based on what the competition charges.
  • Value-based pricing—setting a price based on how much the customer believes what you're selling is worth.

What is price determination?


What is PRICE DETERMINATION? The interaction between the demand and supply in the free market that is used to determine the costs for a goods or service.

Who uses price discrimination?

Industries that commonly use price discrimination include the travel industry, pharmaceuticals, leisure and telecom industries. Examples of forms of price discrimination include coupons, age discounts, occupational discounts, retail incentives and gender based pricing.

What are the benefits of price discrimination?

Price Discrimination involves charging a different price to different groups of consumers for the same good. Price discrimination can provide benefits to consumers, such as potentially lower prices, rewards for choosing less popular services and helps the firm stay profitable and in business.