Question

Explain the different types of price discrimination. Then identify a real-world example of price discrimination (preferably not one from the unit lesson), and explain which type of price discrimination it is. Next, using the good from your own chosen price discrimination as an example, illustrate how the good fits the criteria necessary for successful price discrimination. Finally, discuss how the price discrimination example leads to an increase in total benefit to society. Include in your discussion an evaluation of the effects on people paying the higher price and the effects on people paying the lower price.

Please do not use airlines, hotels or sporting event as an example.

Answer 1

The price discrimination can be classified into first degree, second degree and third degree. This practice was the same good or service is selling at different prices among the customers.
1. First degree price discrimination; this is the perfect price discrimination which charge maximum price among the consumers. The consumers are willing to pay this price for that particular goods and services. The consumer surplus is fully captured by the sellers or firms. This is a rare case of price discrimination.
2. Second degree price discrimination; the price is determined on the basis of the amount of quantity consumed by the customers.
3. Third degree price discrimination; fixation of price is based on the market segment or consumer group. This is commonly seen in most of the entertainment industries.
Imperfect competition, prevention of second hand sale, elasticity of demand is the major requirements for price discrimination.
The Cineplex by Canadian entertainment industry is the best example for price discrimination. This will show the third degree price discrimination.
The resident parking charge can be also paid on the basis of the price discrimination. Thus the residents who have vehicle only want to pay the parking fees. Thus the price is charged only for those who get the service. This will divide the society on the basis of the customers who receive the services. The residents charge higher price than the visitors. The visitors charge will not be a permanent charge, and it will not depend on the charge imposed over the permanent residents. Thus the visitors pay low price and the residents paid high prices.