Question

Discuss the concept of price discrimination. What are the types of price discrimination? Why do certain firms with market power use price discrimination? Any real-life example of firms practicing price discrimination.

Answer 1

Price discrimination is a selling strategy in which seller charge different prices from different customer of same product according to the what seller thinks they get ready to pay.

There are four types of price discrimination first degree, second degree ,third degree and fourth degree price discrimination seller large different price for ever different unit consumed firm charge higher price possible for every unit consume which increase its share in consumer surplus.second degree price discrimination means charging different prices for different quantities. Third degree price discrimination means charging different prices from different consumer groups.fourth degree price discrimination when prices are consumer to same but producer faces different costs.

Firm do price discrimination in order to make higher revenue and to capture more of total surplus by selling at prices at consumer maximum level of willingness to pay.

For example airlines charge different prices for different seasons and different day of the week.

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