Question

what is difference between perfect and third degree price discrimination?

Answer 1

Perfect Price Discrimination : Also called first degree price discrimination . It happens when a firm charges a different price for every unit consumed to consumers . The firm is able to charge the maximum possible price or the reservation price for each unit which enables the firm to take away all available consumer surplus for itself . For practising such price discrimination the firm must be able to know the reservation price of each consumer or the price they are willing to pay .

Third Degree Price Discrimination : This is the commonly practised price discrimination and involves charging different prices for the same product to different segments of the market . Segmentation of the market is done basically on geography and time . It is done based on demographics of the consumer base also . The companies can analyse the broad characterists of each segment very easily and charges price accordingly . Third-degree price discrimination provides a way to extract consumer surplus by observing the price elasticity of demand of specific consumer subsets . As for example in case of gym membership or movie tickets companies can attract low income group people by offering short time discounts etc .