Price Discrimination

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Price Discrimination

• Priscilla Rodriguez
• Economics 521
• Feb. 19, 2007

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What is Price Discrimination?

• Nonuniform pricing
• Charging consumers different prices for the same
  product
• Consumer surplus
• Deadweight loss

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Successful Price Discrimination

• Market power
• Differ in price sensitivity
• Prevent or limit resale
• Example Movie Theaters

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3 Types of Price Discrimination

• Perfect price discrimination
• First degree
• Requires perfect information
• Example Private Schools
• Quantity discrimination
• Second degree
• Charges consumers more for the first unit than
  for consecutive units
• Example Staples
• Multimarket price discrimination
• Third degree
• Divides consumers into groups and charges each
  group a different price
• Example Airlines

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Other Types of Price Discrimination

• Two-part tariffs
• Second degree
• Charges consumers a lump fee (first tariff) for
  the right to buy goods
• Example Costo Sams Club
• Tie-in sales
• Second degree
• Required purchase
• Bundled
• Example Grocery stores Nivea