Price Discrimination
Candlefocus EditorThe three main forms of Price Discrimination are First Degree, Second Degree, and Third Degree Price Discrimination.
First Degree Price Discrimination, sometimes called Perfect Price Discrimination, is the practice of charging each customer the maximum price he or she is willing to pay for a product or service. This form of discrimination is considered the most profitable, as the seller is able to charge the highest possible price for each unit sold. This method is not commonly used, however, as it requires careful market research to determine the optimal price for each customer. It is also difficult to detect and is not ethical to use in most cases.
Second Degree Price Discrimination, also known as Quantity Discrimination, involves offering discounts for products or services purchased in bulk. This type of discrimination is often seen in products such as airline tickets or certain electronic items, where the price of each item decreases with the increase in the number of items purchased. Sellers set the quantity discounts to encourage customers to buy more of their products. This can be used to target a specific customer or customer group, or to move a product when a firm faces an increase in inventory.
Third Degree Price Discrimination, also known as Consumer Discrimination, is the practice of charging different prices to different consumer groups. This form of discrimination is based on characteristics such as age, occupation, and location. For example, companies often charge lower prices for students and seniors, as they believe that these demographics are more price sensitive. Companies also sometimes price differentially when targeting consumers in different geographic locations – charging higher prices in more affluent neighborhoods.
Overall, Price Discrimination is a powerful tool for companies to increase their profits. It can help attract more customers and tap into additional revenue streams. Although Price Discrimination practices can be ethical commercial activities, sellers must be sure to comply with all applicable laws and regulations as some forms are deemed illegal. Companies must also remember to consider the ethical implications of their actions before engaging in Price Discrimination activities.