What is price discrimination and what forms are there? give examples of the forms of pricing discrimination?
Answer:
There is first, second, and third degree price discrimination. First degree is where the seller can set a different price for each consumer. An example may be something like bartering. We don't often observe first degree discrimination. It is also called perfect discrimination.
Second degree is called self-selection. It is the matinee showing of Harry Potter that cost three dollars cheaper or the flights that make you stay over the week to save $75. The consumer decides to pay less, thus they cause the discrimination.
Third degree occurs when there are observable characteristics of the consumer. Students have student discounts. Senior citizens get a $.50 coffee. This is called selection by indicators.
price discrimination is when you charge different prices to different customers based on characteristics of the customer, rather than volume or location or some other criteria. Examples are senior citizen discounts, first time buyer rebates, ladies night specials etc.
Price discrimination is generally prohibited by the government with the exception of these kinds of examples. The idea is that it is unfair to extend a lower price to one customer over another, even if the company can make more money doing so.
You can profit through price discrimination as a seller by customizing your prices to the various customer profiles with regard to their price sensitivity. Seniors are a good example, as in general, they can tend to be more cost concious about things like restaurants, movies etc. As long as you don't have to discount to everyone, and as long as what the senior is willing to pay is more than it costs you to provide, you can come out ahead as a seller.
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