Question

Please, provide an example of easy “price discrimination” and an example of difficult “price discrimination.”

Answer 1

Price discrimination is when a supplier charges different prices from different customers for the same good or service.

Price discrimination can be categorised in the following way:

• 1st-degree price discrimination – when the producer charges the maximum price that the consumer is willing to pay
• 2nd-degree price discrimination – varying the prices based on the quantiy consumed
• 3rd-degree price discrimination – different prices are charged from different segments of the market based on the age, income, etc.
• 4th-degree price discrimination – Consumers are charged the same price but the costs to producer varies. This is called reverse price discrimination.
• Premium pricing.In this consumer is charged a premium for a little extra benefit.

Price discrimination can be practiced when there are different segments of the market for the product and price elasticity of demand is different for different segments of the market.

Examples of Price discrimination:

• Students and old age people get age discounts when they travel by air or railways. If you are student or a senior citizen then by providing your age proof you can avail discounts on travel by railways or air.
• If you book you airline tickets early you get those tickets at a much cheaper price. As you move closer to the date when you want to travel, the prices of the tickets will get higher.
• In a club at ladies night, females get alcohol at discounted prices whereas men have to pay the full price for the same drinks.