Question

Q4:why do businesses charge different prices for the same product or service... rationale?

Answer 1

Price discrimination is a selling strategy that charges customers different prices for the same product or service, based on what the seller thinks they can get the customer to agree to. In pure price discrimination, the seller charges each customer the maximum price he or she will pay. In more common forms of price discrimination, the seller places customers in groups based on certain attributes and charges each group a different price. The practice of one company charging different consumers different prices for the same good is called price discrimination.

With price discrimination, the company looking to make the sales identifies different market segments, such as domestic and industrial users, with different price elasticities. Markets must be kept separate by time, physical distance, and nature of use.

Types of Price Discrimination are:

1. First-degree discrimination, or perfect price discrimination, occurs when a company charges the maximum possible price for each unit consumed. Because prices vary among units, the firm captures all available consumer surplus for itself.

2. Second-degree price discrimination occurs when a company charges a different price for different quantities consumed, such as quantity discounts on bulk purchases.

3. Third-degree price discrimination occurs when a company charges a different price to different consumer groups. For example, a theater may divide moviegoers into seniors, adults, and children, each paying a different price when seeing the same movie. This discrimination is the most common.