Question

1. In many cases, companies may charge a different price to different customers without any true cost differential to justify the discrepancy – this is referred to as price discrimination. Provide examples of how the three different types of price discrimination would apply. If you cannot find a real-life example, provide a hypothetical scenario for how the assigned company could apply each form of price discrimination.
   1^st Degree Price Discrimination,  2^nd Degree Price Discrimination, 3^rd Degree Price Discrimination

Answer 1

1st Degree Price Discrimination

In this scenario, the company charges maximum price for the products it sells.

In this scenario the cost of services / goods are the maximum possible price gettable. For instance, consulting firms might charge 100,000 $ for a customer and $ 10,000 for a different customer for the same consulting work done in terms of efforts, depending on the customer's need, requirement and reputation.

2nd Degree Price Discrimination

In this scenario there are volume discounts for products or services, i.e the more you buy the cheaper your cost per unit.

This is common for regular consumer retail products, including fruit juice packs and soda.

3rd Degree Price Discriminaton

In this scenario , prices are at different levels for different segmants.

For instance for a train ticket, it is cheaper for senior cititzens and for children , sometimes free for them, and higher price for the most common group being regular adults.